Boom or blip?

Posted on 3 Sep 2013 by The Manufacturer

A legacy of declining investment in innovation jeopardises the sustainability of today’s manufacturing resurgence warns Keith Nichols, consultant at industry technology analyst, Cambashi.

The sense of relief as you read through the economic headlines regarding UK manufacturing is almost tangible at the moment. The monthly PMI jumped to 57.2 last month – a two and a half year high which builds on strong Q2 productivity and increasing exports.

But are we celebrating recovery too early?  Is this really the start of a positive trend or is it just another blip, to be followed by further downturns and tough times?

One factor, highlighted by an independent study from the innovation charity Nesta, may point towards a blip.

It suggests that UK innovation investment has fallen by £25bn since the start of the recession, and shows no sign of recovery. Much of the damage from these deep cuts may not be affecting the UK economy right now but over the next few years they could well do.

Properly channelled innovation investment has a positive impact on the economy. However, even if the investment is maintained at normal levels, it may take a few years before it can positively affect manufacturing output because of the time it takes for new products to be developed, built and sold.

Alternatively, when investment is cut, impact on the economy may be reversed. A limited number of innovative new products would reach the market and manufacturing output would drop.

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With less innovative new products, the only fallback would be to extend the life of existing products. They may even have to invest small amounts to face lift them, or reduce the price to maintain competitiveness. Various other studies have highlighted that overseas companies did not cut investment in the same way and many continued to drive the development of new and more innovative products.

Soon UK customers will have to choose whether to buy British extended life products, maybe with a lick of new paint, or new innovative alternatives from abroad.  As much as we may all want to buy British, the economy is still tight and value for money is a higher priority than ever.

Are yesterday’s actions regarding the level of innovation investment going to come back in future and sting us? If they do, we may also bring with it an unwanted increase in imports.

Related reading

Investment spree is coming, but where will manufacturers spenf their cash?: Will Stirling’s blog and industry comment on where investment is going in UK manufacturing firms.