Manufacturing’s revival?

Can UK manufacturing industry enjoy a sustained revival at a time when financial services are under pressure from the credit crunch? The Engineering Employers’ Federation has produced a new report on the performance of the manufacturing sector which concludes that “manufacturing is performing strongly with a number of the indicators at their highest level for ten years.”

Manufacturing output is expanding and so too are employment levels. Planned capital investment is said to be the strongest since 1995 and the number of companies reporting improving profitability has risen from -4% in 2003 to 34% in 2007.

These are very positive short term trends helped I suspect by the sharp fall in the pound-Euro exchange rate which is giving a significant competitive boost to industrial businesses looking to export to the European Union.

Deindustrialisation has been one of the defining structural changes in the UK economy over the last past thirty years and more. The share of manufacturing value added in our GDP has continued to shrink and is now less than 16%. Employment has declined from over seven million in 1980 to less than three million today. And in 2007 the annual trade deficit in finished and semi-finished manufacture products climbed to a record high.

But there are plenty of signs that British manufacturing industry continues to be competitive and is meeting the challenges of the shift in global manufacturing production to countries such as China and India. Britain retains really strong supply chains in aero engines, car engines, vehicles, aerospace and defence. And the EEF reports that nearly seven-in-ten companies expect the UK to remain their prime location for production and assembly over the next five years. The sector has also outperformed services in terms of achieving higher labour productivity.

I have attached a PowerPoint file which shows some of the trends in output, jobs, investment, trade and productivity for the UK manufacturing sector.

PowerPoint Charts
Manufacturing_UK.ppt