According to the Office for National Statistics’ latest figures, manufacturing is responsible for just 10% of the UK’s £1.7 trillion annual GDP – a proportion that has remained fairly constant for the past six years or so. By comparison the services sector currently makes up more than 78%.
But go back 17 years to 1997 and manufacturing was at 18.5% – a level from which it declined steadily until 2009, as millions of jobs have been lost in the sector.
But these raw statistics do not really offer a full picture of the value of manufacturing to UK PLC today.
Firstly, while there has undoubtedly been a drop in the level of manufacturing activity per se over the past 20 years, this decline looks more pronounced in percentage terms because of the expansion of the services sector. There are also recent signs that the manufacturing sector is expanding. Trades body, EEF reports a 2.7% growth in manufacturing in the year to Feb 2015 at a time when other areas of production, such as energy and mining, have stagnated.
There is also the argument – one you hear a lot of in manufacturing circles – that the 10% of GDP that is manufacturing at this present time is much leaner and fitter than manufacturing operations two decades ago – the products are of a higher added value and the companies that make them more globally competitive.
This situation is borne out by export figures. According to UK Trade and Investment, exports of goods from the manufacturing sector totalled £263bn in 2013, representing an impressive 52% of all foreign sales. Top destinations for goods manufactured in the UK are the US, which imported £32bn of goods in 2013, Germany (£24bn) and France (£16bn).
Because the manufacturing sector is far more export-facing than any other part of the economy, policy body, the Work Foundation, reports that “it remains critically important to our economic health, because it is highly productive and accounts for such a huge share of our exports.”
Growing the manufacturing sector has been in the news a lot recently. The EU has stated an ambition to see manufacturing make up 20% of the region’s economy by 2020. The current coalition government has also made a lot of statements about “rebalancing the economy” and promoting the “March of the Makers.”
And there are a number of opportunities that have the potential to contribute considerably to the health of economy.
One relates to strengthening the UK’s manufacturing supply chains – a move the CBI argues could boost our country’s ability to offer greater innovation, quality and service than our global competitors and could potentially be worth up to £30 billion and 500,000 jobs by 2025.
Responsive supply chains will be necessary if we are to attract manufacturing operations back to the UK – a trend known as reshoring, which Ernst and Young, (now called EY) describes as “a once-in-a-lifetime opportunity for the UK” to add £15.3bn of GDP to the economy, and more than 315,000 jobs by 2025.
By supporting those sectors which offer the greatest return from reshoring in terms of employment and GDP – such as aerospace, defence, automotive, petroleum products and clothing, serving the European market – EY says the “UK will have a far more balanced, healthy and robust economy”.
Watch this space.