Manufacturing worth 19% of UK economy, according to CBI chief

Posted on 10 Sep 2015 by Fred Tongue

CBI chief John Cridland will today address an audience of business leaders, senior economists, Government officials and politicians regarding the UK economy.

Speaking at King’s College London, John Cridland will state that the UK economy is growing strongly and rebalancing healthily, with investment and productivity increasing, but we must raise our game on exports.

John Cridland, director general, CBI.
John Cridland, director general, CBI.

The CBI chief will also warn about the possible dangers the National Living Wage could have on employment in the UK.

He will comment: “This recovery hasn’t been over-reliant on consumer spending and there has been some rebalancing of activity towards investment.

“We’ve seen rebalancing away from the public sector towards the private sector, away from unemployment towards employment, and we’ve also seen some rebalancing within the services sector itself.”

Speaking about the extent of the rebalancing, Cridland is expected to note:“The UK has made progress in the past five years. A more balanced economy should not only grow faster over the medium-term, but should also produce more resilient growth.

“We’ve seen well-balanced domestic growth, with solid expansion in business investment – especially in ‘Intellectual Property’, like R&D and software. Business investment as a percentage of GDP has now risen above the previous peak in the early-2000s.

“We’ve also rebalanced from the public to the private sector. From 2009 to 2014, the number of people employed by the private sector rose by more than 2.5m – easily offsetting a 900,000 reduction in public sector employment in the same period. And – of course – we’ve rebalanced from unemployment to employment.”

Manufacturing services

The CBI chief will discuss recent trends in the manufacturing sector and highlight how important it is to the rest of the economy, “While some commentators have been looking for a rebalance from the service sector to manufacturing, I believe this is no longer the right way to look at our economy,” he will declare.

“A transformation currently taking place within the sector is rendering the distinction between services and manufacturing less and less meaningful. I’m talking about two related trends. One is the outsourcing by manufacturing firms of a whole range of activities – design, programming, analytics, marketing, and so on.

“The other is the increasing tendency for manufacturers to develop and sell services themselves [servitization] to gain a competitive advantage. Taking the wider impact of manufacturing into account, we estimate that the sector could account for 19% of the UK economy, double the share implied by national accounts.

“This interdependence between services and manufacturing can also be seen in the rebalancing within the services sector since 2009. While the share of financial services and public administration has decreased, the share of non-financial services related to business has risen.”


From there Cridland will go on to outline the three biggest issues the UK faces in terms of rebalancing, chief of which is exports, “Middle class consumers in emerging economies want branded goods and services, and the Union Jack flies high here. Jaguar cars, Prudential Insurance, and where we really score – our creative industries.


He will also discuss productivity:“While I will happily accept the productivity challenge, I don’t accept that it is a puzzle. As well as understanding – quite forensically – the causes of the productivity stall, we need to be sure we are confident in macro-productivity measures before we jump to policy solutions.

“In our data-driven, knowledge-based economy – where services play a key role – it’s less and less just about the quantity of widgets coming off production lines and more and more about the quality of customer interaction. We need productivity data which understands this – helping policy-makers reach the right conclusions, finding the right solutions.”

Living standards

Finally he will go on to speak about living standards as another missing component of rebalancing: “As I have toured the country during my time as CBI director general talking about our improving economy, I have often received a different reaction from the public to that from employers, especially outside of London and the South East.

“Meeting people for whom GDP figures were irrelevant if they couldn’t touch, smell and feel economic recovery. And even though we had a jobs-rich recovery it was a long time before we saw a pick-up in wage growth, because that depended on the turn in demand, in business investment and in productivity.”