Made in Britain tag leaves no room for complacency.  Photographer: Simon Dawson/Bloomberg
Made in Britain tag leaves no room for complacency. Photographer: Simon Dawson/Bloomberg

With figures today confirming that the German economy contracted by 0.2 percent in the second quarter, the U.K. looks splendidly isolated from the economic malaise gripping its euro neighbors. A slowdown in manufacturing last month, however, illustrates that the U.K.'s recovery is immune neither to the euro area's stagnation, nor to the geopolitical risks to business and consumer confidence.

Markit Economics said today its index of U.K. manufacturing declined to 52.5 last month, while the June gauge was trimmed to 54.8 from an initial reading of 55.4. Economists had anticipated an August figure of 55.1. While anything above 50 indicates manufacturing is still growing, the index does suggest British factories are less robust than they have been for more than a year:

The Bank of England's predicted 2014 growth rate of 3.5 percent compares well against the 1 percent median growth forecast for the euro area, from 55 economists surveyed by Bloomberg. Yet Chancellor George Osborne may still miss out to the U.S. for the prize of fastest growing economy in the Group of Seven nations this year, and the global backdrop means there's no room for complacency. In particular, there's more to be done on decentralizing the economy away from London.

A report today from auditing and financial services company Grant Thornton LLP divides the U.K. into cities and districts, measuring each region's growth. The result shows that London had nine of the top ten best-performing regions in the country over an eight-year period, with Manchester, Birmingham and Milton Keynes the best-placed outside the capital. According to the report:

London makes up around half of the 50 top performing districts. The focus needs to be on re-balancing the economy and creating economic scale to drive sustainable growth outside of the capital, as much as within it.

That will require a change of mindset in the central government. Politicians and businessfolk are currently wrangling about the best way to expand the U.K.'s airport capacity to foster trade and growth. Heathrow, one of the world’s busiest airports, is close to overflowing, and wants to build a new runway west of the capital. Gatwick, a smaller airport south of London, is also bidding to get an extra runway. London Mayor Boris Johnson wants to start afresh with a brand new airport in the Thames Estuary.

Note that all three plans under consideration by the Airports Commission are London-focused. An alternative solution would be to ensure that whichever alternative is favored comes allied with a plan to distribute the burden and opportunity of increased flights further north.

Better transport links to the airports of Manchester, Birmingham or Liverpool would be a good start, and the government's planned high-speed train investment would help; a longer-term plan for infrastructure investment that stitches the regions more closely to the capital, followed by the redistribution of more government functions, would be even smarter.

To contact the author of this article: Mark Gilbert at magilbert@bloomberg.net.

To contact the editor responsible for this article: Marc Champion at mchampion7@bloomberg.net.