|The idea is that growth before the financial crisis was too dependent on financial services and consumer spending.
During the recovery, ministers and senior Bank officials have argued that we need a bigger contribution to growth from non-financial businesses and from investment and exports.
But four years into the recovery, there are few signs of this shift. Financial services have contracted – with banking and insurance activity down 9pc since 2007. But manufacturing output has fallen by 8pc over the past five years – almost as much.
Investment spending has been sluggish. UK capital spending was just over 14pc of GDP in 2011 and 2012 – the lowest ratios for 60 years – compared with 17-18pc before the financial crisis.
And though exports have grown, imports have risen even faster. That has pushed up our deficit with the rest of the world – to nearly £60bn last year.
In 2012 we recorded the fourth highest UK balance of payments deficit as a share of GDP (3.7pc) since 1948. Only in 1974 and 1988-89, when our economy was overheating, were the figures higher.
The economy remains dependent on spending by consumers and government. Instead of falling, the share of public and private consumption in UK GDP reached a post-war high in 2012 – at 88pc of GDP.
The official response to this lack of rebalancing is to argue that it is a matter of time. I take a different view.
First, ministers and central bankers are not best placed to judge which parts in the economy need to grow and which should reduce in size. Their policies should support growth across the economy and not favour specific sectors.
The bulk of our economy is made up of services industries, whereas manufacturing contributes just over 10pc to GDP. And it is services that have led the UK recovery – with output now back above the pre-recession peak in 2008.
Second, a weak pound is not helping to rebalance the economy. Though sterling has fallen 20-25pc since mid-2007, it has pushed up import prices and inflation. Third, we need a stronger emphasis on supply-side policies – measures that help make the UK a more attractive location for investment and wealth creation, encourage new firms to start up and incentivise businesses to expand.
That means cutting back the burden of regulation, rewarding firms investing in skills, accelerating the development of new transport infrastructure and simplifying our tax system.
The main way in which the Government should be seeking to rebalance the economy is through reducing the burden of public spending, allowing the private sector more scope to develop new business opportunities. Many of these will be in the services sector, not just manufacturing. And we won’t help ourselves by devaluing the pound, which is a surefire recipe for higher inflation.