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Manufacturing in the UK

Manufacturing is vital to UK prosperity and the Government is firmly committed to the development of a strong high value added manufacturing sector with the ability to compete successfully in global markets. The following provides a snapshot of the continued importance of UK manufacturing:

• UK is the world’s 6^th largest manufacturing country in the world
• Manufacturing adds over £150bn to the economy (2006)
• Manufacturing in the UK accounts for a seventh of total output and generates 50% of all UK exports
• Manufacturing employs directly almost 3 million people
• Manufacturing accounts for three-quarters of business R&D.

Advances in information and communication technologies, materials, biotechnology, fuels, and nanotechnology offer considerable scope for innovation in the manufacturing process. Together with the opening up of world markets to trade, this offers great opportunities for UK manufacturers.

Restructuring of UK Manufacturing

In the UK, and most OECD countries, there has been a decline in manufacturing as a percentage of GDP and a commensurate increase in services. In 1970, manufacturing accounted for 32 per cent of UK output. In 2005 it accounted for 13 per cent, due in part to increased productivity and increased incomes which lower the proportion of income spent on manufactured goods.

However, beneath the rise of services and relative decline of manufacturing there is a more interesting story of economic restructuring towards higher value-added, knowledge-intensive sectors. In the UK, growth in high-technology sub-sectors such as aerospace, pharmaceuticals and computer manufacturing has outstripped growth in low-technology sectors.

In manufacturing, growth has averaged approximately 0.5 per cent over the past decade, but there is a wide dispersion of rates among different sectors. The chemicals and man-made fibres, electrical and optical equipment, and transport equipment sectors have experienced average growth rates in excess of 2 per cent per annum over the period 1995–2006, while more traditional sectors have declined. In 1981, 8.4 per cent of UK goods exports were classified as high technology. In 2006, this had risen to 25.7 per cent.

The Changing Nature of Global Manufacturing

Manufacturing is a sequence of functions, covering R&D, design, supply management, production, distribution, logistics and sometimes the provision of after-sale services. Traditionally, many of these functions were carried out in a single factory.

But manufacturing is going through rapid change. The removal of trade barriers and falling costs of transportation, together with the developments in information and communications technology, have led to a fragmentation of the manufacturing chain. Companies are adapting and engaging in one, some or all of the links in the value chain – from R&D through production to service provision – to give themselves competitive advantage.

For high-cost economies such as the UK, the activities that are likely to thrive are those that by their nature are complex and high-value adding, and those that act as a key part of the global value chain. Depending on the circumstances, these activities may include R&D, design, production or service: none should be ruled out when developing strategies and policies.