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(Updates after meeting, adds reaction)
By William James
LONDON, Aug 2 (Reuters) - Prime Minister Theresa May onTuesday kickstarted her bid to reshape the British economy for apost-Brexit world, reviving the once unfashionable concept ofindustrial policy 30 years after Margaret Thatcher killed itoff.
May chaired the first meeting of the "Cabinet Committee onEconomy and Industrial Strategy" in her Downing Street offices,bringing together the heads of 11 other ministries to set outher vision for a state-boosted industrial renaissance.
"The prime minister emphasised that the objective of thegovernment's new industrial strategy should be to deliver aneconomy that works for all," a spokesman said in a statementissued after the meeting.
After a referendum campaign that revealed dissatisfaction inmany of Britain's struggling post-industrial regions, May ispitching a plan to reunite the country and strengthen her gripon power by raising the prospects of those who she casts as"hard-working people".
The June 23 vote to leave the European Union has raisedserious questions about the future of the world's fifth largesteconomy, with some surveys indicating a recession, a hit toconsumer confidence and a possible fall in investment.
The challenge is to find a formula that arrests adecades-long decline in Britain's manufacturing sector byhelping firms tackle the challenges posed by globalisationwithout blunting the market forces that make them competitive.
The meeting focused on ways the government could supportgrowth in different areas of the country, the spokesman said.
Finance minister Philip Hammond told the meeting that byreducing the productivity gap between the rest of the countryand London and the southeast, economic output could rise by 9percent, adding over 150 billion pounds to the economy.
Ministers agreed the strategy should also be focused on"playing to the country's strengths while also creating aneconomy that is open to new industries, particularly those thatwill shape our lives in the future," the spokesman said.
That push that could help carmakers such as Jaguar LandRover and Nissan and aerospace industryleaders like BAE Systems to weather the Brexit storm.
It is also geared to support the creation of new technologyfirms such as microchip designer ARM, which was sold to Japan'sSoftBank last month for $32 billion.
Experts say recent efforts at implementing closercooperation between the state and industries such as carmakersand aerospace have been partially successful, but need to bescaled up and placed at the heart of government thinking.
"The very fact that the new prime minister is chairing thiscommittee, I hope, addresses one of the weaknesses of the lasttwo administrations ... that is the relative lack of joined-upthinking, a cross-governmental approach," said Terry Scuoler,head of the EEF manufacturing trade body.
"If this committee chaired by the prime minister statessomething, it is going to be potent."
While policy detail is scarce, the strategy is likely tocombine state-backed investment in traditional infrastructuresuch as roads and rail with funding for modern essentials suchas broadband and lower energy costs, along with a push to trainmore of the highly-skilled workers that industry says it needs.
NOT PICKING WINNERS
Industrial policy has a toxic legacy in Britain.
It was once used to help failing national champions througha series of flawed policies in the 1960s and 1970s that soughtto arrest a decline in manufacturing influence.
"We're not getting into the business of picking winners -it's more about creating the right environment," a governmentsource who spoke on condition of anonymity said.
Already, less than a month after the fallout from the Brexitvote swept her into power, May has two major industrialheadaches.
Last week, she surprised French utility EDF andChina with a last-minute decision to review their project tobuild a nuclear plant in Britain, calling into question herapproach to Chinese investment, which is seen as a crucialsource of infrastructure cash.
Speaking after the meeting, the spokesman said Britain wouldcontinue to seek investment from around the world.
May also has to deal with Tata Steel, which putthousands of jobs under threat earlier this year when it said itwanted to sell its British steelmaking operation, citing highenergy costs and low global steel prices. The firm is nowinvestigating a possible joint venture instead of a sale.
"If Theresa May backs British manufacturing that issteel-intensive, then suddenly there's a market here for Britishsteel and that could make Port Talbot (steel plant) a viableoperation," said Ben Orhan, analyst at IHS Global insight."(But) it really depends where the focus is going to be."
The refocusing of Britain's economic policy, which for thelast six years was aimed at balancing the books and heavilyreliant on foreign money to replace state infrastructurespending, also carries a potentially huge political prize.
With the opposition Labour Party, long seen as the championof the working classes, locked in a vicious internal ideologicalstruggle and losing sway in its traditional heartlands, May hasan opportunity to win over those who saw voting 'Leave' in theEU referendum as a 'nothing to lose' protest vote.
"The Brexit vote and euroscepticism was strongest in formermanufacturing areas, where the industry has gone, the good jobshave gone and people feel disaffected," said David Bailey,professor of industry at Aston Business School.
"If May's going to do something about reconnecting,manufacturing has got to be part of the story." (Additional reporting by Costas Pitas, Sarah Young and MaytaalAngel; Editing by Guy Faulconbridge and Tom Heneghan)