The State of British Manufacturing

Posted by Moira McCormick on March 25, 2016
Moira McCormick

Bet you thought that manufacturing in the UK was in the doldrums, at least in comparison with our glorious past? Well, think again. Nobody is denying that there have been some very tough times and the current situation with Tata Steel exemplifies what happens when a proud and once successful industry is fighting for survival. It's been a tough few weeks for the UK manufacturing sector and undeniably jobs are likely to go.

However, despite the decline since the 1970s, when manufacturing contributed 25% of UK GDP, and contrary to the commonly held belief, UK manufacturing is strong. The UK is currently the 11th largest manufacturing nation in the world. Manufacturing makes up 11% of UK GVA and 44% of UK exports and directly employs 2.6 million people. Overall, the UK’s industrial sector has increased by 1.4% a year since 1948, according to a recent report from the Office for National Statistics (ONS).




Why is the UK Successful?

The ONS attributes the sustained growth to the following:

  • a better quality, more skilled workforce

  • a shift in production from low to high productivity goods

  • improvements in automation and ICT

  • increased investment in R&D

  • a more integrated global economy


According to the EEF, UK manufacturing also

  • represents 69% of business research and development (R&D)

  • provides 15% of business investment


Although the contribution of manufacturing to GDP has declined on paper, many of the services provided to manufacturers which would have once been considered part of manufacturing, such as catering, cleaning, building services, security and so on, are now allocated into different areas of the economy.

However, those contributions are directly reliant on manufacturing for continued business and could actually be considered as a part of manufacturing’s GDP input. As such, many are calling for the true value of manufacturing to be recognised, a move which would see the widely cited figure of 10% of GVA almost doubling to 19%.


Key findings from the Annual Manufacturing Report 2016

Training & Skills

UK manufacturing needs more skilled workers. The vast majority (84%) of respondents said they have multiple vacancies and more than a fifth (22%) said that they have 10 or more vacancies. UK manufacturing is prepared to fill these vacancies from the next generation, with many giving a first job to a school leaver, Further Education or university graduate.

The overwhelming majority of manufacturers offer apprenticeships, but just over a quarter (26%) do not. The majority of those who currently don’t have apprentices indicated that they plan to offer them in the future.


Economy, Policy & Growth

85% of UK manufacturers are either “very” or “quite optimistic” about the British economy over the coming 12-36 months, which is the second-highest figure recorded since the AMR was launched in 2008.

86% maintain that the economy is generally being managed “well” but confidence in government policy is a little lower when it comes to manufacturing in particular at 70%.

This year’s key business focus has been “new product development” (81%), followed by “improved customer relationship management/exploitation of sales opportunities” (71%). That is expected to be reversed in the coming year.



Productivity is a continuing concern for the country as a whole. Automation helps manufacturing to improve productivity and competitiveness and the evidence is that companies are investing in it, at reasonably high levels.

A little under half of respondents said that they are in the process of implementing a major project, and 21% said that they last did so in 2014. This means that just under two-thirds of UK manufacturing businesses committed to major automation projects in the past two years.

A comfortable majority (60%) of respondents said that working conditions and job satisfaction had improved as a result of their most recent automation project. 44% said that jobs had been preserved, and 18% reported that new jobs had been created.



In essence servitization is a transformation journey - it involves manufacturing firms developing the capabilities they need to provide services and solutions that supplement their traditional product offerings.

This is a new section for the AMR 2016 and the intention is to gauge the importance of servitization, whether it is spreading, its impact, and growth.

Areas that are at least the germs of servitization, if not core competencies, are currently in the minority, but their levels already look significant. Of these, the strongest is customer support agreements, with 41% mentioning them. Availability contracts are offered by nearly a fifth (17%) of respondents and ‘pay for use’ agreements by almost one in eight (12%).

The main reason, by far, for offering servitization was identified as “closer relationships with customers”, which was selected by 74%. 46% look for improved profitability through the provision of added-value services, just ahead of the closely-related reason of increased revenue (44%).



Investment in information and communications technology (ICT) continues on an upward trend; 61% said they are spending more this year than last, which is the second-highest level the AMR has ever recorded.

ERP (Enterprise Resource Planning) systems have been given top priority by the highest number of companies this year (25%), followed by Upgrading IT Infrastructure (16%) and Manufacturing Execution Systems (11%).


Why have so many foreign companies invested in the UK?

Foreign investment plays a big role in UK manufacturing. There are lots of things about the UK that make it an attractive destination for foreign companies looking to acquire other businesses or expand overseas.

The UK is very open to other countries wanting to buy into it. It's within the European Union, which is attractive to US and Asian businesses wanting to reach other European customers. It has relatively low corporation tax and a flexible labour market, which makes it easier to expand and contract a business as is necessary.

Big holdings include Cadbury in the food and drink sector, which was bought by the US company Kraft. In the car industry, Nissan has factories in Sunderland. The pharmaceutical giant Pfizer has operations in the UK.

In recent years however the strength of sterling has been a big problem for foreign investors. A strong pound makes investing in the UK more expensive for foreign companies and it makes their products more expensive to export once they have been made.


What's been going wrong in the past few months?

There have been depressing headlines in the past few months about job losses and closures in UK manufacturing. Rob Dobson, senior economist from Markit, said the sector had been "stunned by a triple combination of a sharp slowdown in consumer spending, weak business investment and stagnating export order inflows".

But most of the big headlines have been about one sector, steel, with Thailand's SSI closing down in Redcar and India's Tata shedding jobs.

The industry in the UK blames this on relatively high electricity prices in the UK for such energy-intensive businesses, compounded by the extra cost of climate change policies. It says that the government's policies to compensate steel companies for such extra costs have been implemented too slowly.

There are of course allegations that the Chinese steel industry has been selling steel in the UK at unrealistically low prices and the UK has struggled to compete with the lower-cost economies in Asia. Sanjeev Gupta, attempting to resolve the current Tata Steel crisis says that six million tonnes of steel, presently imported into the UK, could competitively be made here.

Mr Gupta would want to make what he calls "green steel" - in other words make steel by melting and recycling scrap steel using an electric arc furnace and then rolling it into the steel coil we see on lorries along the M4 and on freight trains.

The European Union is unusually strict about state aid to iron and steel companies so it is a particularly difficult time for the UK steel sector, which is having an even harder time than manufacturing as a whole.


How serious is all this?

When big manufacturers shed jobs, many tend to go at once, often in parts of the country with relatively few alternative employers, which is why they make big headlines. Industry bosses and the unions say that the UK manufacturing sector could be stronger if the government was as much of a friend to industry as the governments of other EU members such as Germany and France.

"It is important that manufacturing exporters, in particular, get the support they need as they face significant challenges," says David Kern, chief economist at the British Chambers of Commerce.

"Additional efforts are needed on the part of the government to strengthen the manufacturing sector, particularly in key areas such as exports, access to finance and skills."


Some better news

One piece of good news for the manufacturing sector in recent trade figures suggested an unexpectedly strong improvement in exports of goods and services, despite the strong pound.

"The cheering implication is that there has been more of a revival in the competitiveness of British manufacturing than other official statistics would indicate," BBC economics editor Robert Peston wrote.

The UK is an attractive destination for foreign companies looking to acquire other businesses or expand overseas and we are very open to other countries wanting to buy into the sector. The UK is within the European Union (at the moment) which is attractive to US and Asian businesses wanting to reach European customers.

The UK has relatively low corporation tax and a flexible labour market, which makes it easier to expand and contract a business as is necessary.


The big hitters in the UK

Motor Industry

Eight global car manufacturers are currently present in the UK. These include British makers now owned by overseas companies such as BMW (MINI, Rolls-Royce), Volkswagen (Bentley) and General Motors (Vauxhall Motors) and plants making vehicles under foreign ownership and branding such as Honda, Nissan and Toyota with a number of smaller, specialist manufacturers (including Lotus and Morgan) and commercial vehicle manufacturers (including Leyland Trucks, LDV, Alexander Dennis, JCB, the main global manufacturing plant for the Ford Transit, Manganese Bronze and Case-New Holland) also being present. The British motor industry also comprises numerous components for the sector, such as Ford's diesel engine plant in Dagenham, which produces half of Ford's diesel engines globally.Triumph Motorcycles Ltd is the only wholly British owned major transport manufacturer.


Aerospace/Railways/Ship Building

A range of companies like Brush Traction and Hunslet manufacture railway locomotives and other related components. Associated with this sector are the aerospace and defence equipment industries. The UK manufactures a broad range of equipment, with the sector being dominated by BAE Systems, which manufactures civil and defence aerospace, land and marine equipment. The VT Group is one of the world's largest builders of warships; GKN and Rolls Royce manufacture aerospace engines and power generation systems. Commercial shipbuilders include Harland and Wolff, Cammell Laird, Abels, Barclay Curle and Appledore. Companies such as Princess, Sealine, Fairline Boats and Sunseeker are major builders of private motor yachts.



Another important component of engineering and allied industries is electronics, audio and optical equipment, with the UK having a broad base of domestic firms, alongside a number of foreign firms manufacturing a wide range of TV, radio and communications products, scientific and optical instruments, electrical machinery and office machinery and computers.



Chemicals and chemical-based products are another important contributor to the UK's manufacturing base. Within this sector, the pharmaceutical industry is particularly successful, with the world's second and seventh largest pharmaceutical firms (GlaxoSmithKline and AstraZeneca respectively) being based in the UK and having major research and development and manufacturing facilities here.

Other important sectors of the manufacturing industry include food, drink, tobacco, paper, printing, publishing and textiles. The UK is also home to three of the world's biggest brewing companies - Diageo, SABMiller and Scottish and Newcastle. Other major manufacturing companies such as Unilever, Cadbury, Tate & Lyle, British American Tobacco, Imperial Tobacco, EMAP, HarperCollins and Reed Elsevier have a huge presence in the UK.



So, how can UK manufacturing maintain and better it's place in the world league? Changes in the future will present major opportunities for the UK to develop competitive strengths in new and existing areas, but they will also present considerable challenges and threats, not least through increases in global competition. It will be essential for government and industry to work together to forge new policy frameworks and develop measures so that manufacturing is able to fulfil its full potential for contributing to UK economic growth and prosperity, and in rebalancing the economy.


Government needs to act in three areas to:

  • exploit new forms of intelligence to gain sharper insights into the sector and where value is being created

  • take a more targeted approach to supporting manufacturers, based on a system-wide understanding of science, technology, innovation and industrial policies

  • adapt and build innovative new institutional capability for the future


Manufacturing industries must:

  • be faster, more responsive and closer to customers

  • seek out new market opportunities

  • be more sustainable

  • train and develop the skills of their workforce


Manufacturing in the UK may not be the dominant force in the economy that it was between the Industrial Revolution and the 1960s, but it is still a vital contributor to the way we pay our way in the world, sustain our standard of living and generate new jobs. Long may it continue.



Redesigning Manufacturing:Reimagining the Business of Making in the UK, 2015 by Michael Beverland and Beverley Nielsen

Product Design for Manufacture and Assembly, Third Edition, 2010 by Geoffrey Boothroyd and Peter Dewhurst

Manufacturing Planning and Control for Supply Chain Management, 2011 by F. Robert Jacobs and William Lee Berry

Manufacturing Processes, 2014 by Rajeev Kumar and Maheshwar Dayal Gupta

Make or Break, 2008 by Kaj Grichnik and Conrad Winkler

Topics: Manufacturing

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