Forecasts may be gloomy, but UK manufacturing stays positive

Headlines can be misleading: while anyone scanning the media in recent times could be forgiven for thinking that UK manufacturing is in decline, the facts tell a very different story.

British manufacturing is a success story of which the country can be proud – and there is every reason to be optimistic and ambitious for the future.

Research published jointly by Santander and EEF provides the evidence for this argument. Manufacturing is responsible for millions of skilled jobs, employing people in every part of the country, underpinning research and development, investment and innovation, and driving the UK’s export sector.

This, moreover, is a growing sector, with real presence on the global stage. The latest data available from the United Nations Conference on Trade and Development (UNCTAD) shows that by the end of 2015, the UK’s manufacturing sector was the eighth largest in the world, having moved up one place on 2014 by jumping ahead of France – and having been eleventh as recently as 2013.

UK aims even higher

Manufacturing’s upwards trajectory is to be celebrated, and Britons are ambitious for the sector: seven in 10 say the UK should be aiming for a place in the top five. That may be a difficult goal to secure given the countries ahead of us, namely China, the US, Japan, Germany and South Korea, but the aspiration is important.

It’s a reminder of the value that the British public attaches to having a vibrant and growing manufacturing industry. No wonder, given the contribution that the sector makes to the UK economy as a whole. It currently generates 10% of the nation’s total economic output, produces 44% of the goods and services we export to international markets, and employs 2.6 million people.

In addition, manufacturing, unlike some industries, is a truly nationwide pursuit, with a strong presence in every part of the country. Well-known examples include the Midlands’ automotive sector, the steel industry in Yorkshire, and the shipbuilding centres of Glasgow and Belfast.

Yet, the Santander/EEF research data reveals the important role played by manufacturing across the UK.

From the South West of England, where the sector employs 236,000 people or 7.9% of the local population, to the North East, where the figures are, respectively, 115,000 and 9.6%; and in Scotland (180,000 and 11%), Wales (156,000 and 10.7%) and Northern Ireland (318,000 and 10.2%).

Nor, in reality, is manufacturing just a single industry. Rather, it consists of a diverse group of producers making goods for sectors ranging from food and drink to chemicals, from metals to electronics, and from machinery to transport.

This is a sector with a proud record of renewal. The Santander/EEF research shows that manufacturing accounts for 13% of all investment made by businesses in the UK and for a remarkable 70% of total R&D spending. Sub-sectors such as chemicals and transport are spending large sums on innovation that will deliver the products and services of the future.

Investing for Industry 4.0

Indeed, the innovation cycle is coming full circle. Some 250 years ago, the original industrial revolution began in the UK as British manufacturers harnessed new power sources to drive machine production.

Today, our companies are playing a leading role in what is sometimes dubbed the Fourth Industrial Revolution, driving greater productivity and functionality from advances in fields such as artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing.

In each of these fields, UK companies are to be found at the forefront of development. It’s an important point, for the traditional stereotypes around manufacturing are misleading.

Far from being low-tech, dirty and manual enterprises, the UK’s leading manufacturers are very often at the cutting-edge of technology, with highly skilled employees who are well-placed to ensure the sector is able to exploit the huge opportunities that the fourth industrial revolution is already creating.

Indeed, while manufacturers undoubtedly need to increase recruitment – firms in many sectors report skills shortages with the potential to inhibit their growth – the rewards they are able to offer provides a competitive advantage over other sectors of the economy.

Average annual earnings in UK manufacturing stand at £32,047 according to the ONS, against £28,299 across the economy as a whole – and £27,548 in the service sector.

Nevertheless, closing those skills gaps will be crucial if UK manufacturers are to work towards the country’s ambitions for growth. The industry’s ability to compete on the international stage is based on the quality and sophistication of its products rather than price, so constant innovation and development is crucial.

Overcoming the headwinds

Right now, the exports story is impressive. The sector’s overseas sales have grown over the past year – partly thanks to rising global demand as the world economy has posted stronger growth figures and partly because the fall in the value of sterling has made British goods more competitive on the international stage.

The uncertainties around Brexit certainly loom large – sales to EU markets accounted for 48% of manufacturing exports in the second quarter of 2018, but the sector also enjoys strong sales in other parts of the world; sales to the US, for example, totalled almost £41bn in 2016, almost a third as much again as the £28.7bn of exports to Germany, the UK’s second most important destination for manufacturing exports.

Santander’s latest Trade Barometer research, published in September, suggests manufacturers can rise above the Brexit doubt. It shows that British companies are confident about their ability to grow over the next 12 months, with businesses that have international sales likely to be even more confident than purely domestic concerns.

This is not to discount the scale of the challenges that lie ahead, including ensuring a satisfactory outcome from the Brexit negotiations, resolving those skills shortages and finding the right ways to exploit the opportunities afforded by the Fourth Industrial Revolution.

Nevertheless, the Santander/EEF research shines a light on a sector that is already performing much more strongly than it is often given credit for. Those who are optimistic about the future of UK manufacturing have every right to be ambitious.