Manufacturing sector reaps rewards of Government productivity push

By Jonathan Eaton, contributing editor

Latest statistics from the Chartered Institute of Purchasing Managers, published in the Financial Times, show that the UK manufacturing sector grew at its fastest pace in three years during July 2007.

The news comes just over a year after the Department for Business Enterprise and Regulatory Reform (BERR) commissioned a report into productivity in the UK, which found that a productivity drive in the UK had seen the gap with Germany closed, the deficit with France halved and the lead over Japan increased.

Budgetary estimates from 2007 have found evidence that barring a miraculous German recovery the UK is likely to exceed German productivity in the very near future.

Five key factors of growth

BERR stated that improvements in UK productivity from 1999 onwards are due to changes in five areas: investment, innovation, skills, enterprise and competition.

UK investment in industry was the most consistent of all G7 countries, competition was the third highest globally and the entrepreneurial environment continued to be friendlier than France or Germany, with costs for starting up a business remaining lower.

The report stated that these successes were a platform for a sustained growth in productivity.

Manufacturing myths

In 2005, France’s President Chirac declared that the UK had “given up on manufacturing”.

Yet, despite perceptions to the contrary, manufacturing is a vital part of the UK economy.

“There tend to be 3 myths about UK manufacturing industry,” says Raul Kharbanda, UK Trade & Investment’s research manager.

The UK manufacturing sector is probably bigger than the official figures suggest.

Raul Kharbanda

Research manager

UK Trade & Investment

“First, there is a perception that it has become a relatively unimportant part of the UK economy, yet manufacturing in the UK accounts for 14% of GDP.”

“Secondly,” he continues, “the absence of a UK-based global brand in manufacturing leads to a belief there is no UK manufacturing base.”

“Lastly,” continues Kharbanda, “the UK manufacturing sector is probably bigger than the official figures suggest.”

In contrast to Germany, UK firms have a greater tendency than German and French firms to outsource production.

“Outsourcing is defined by official statistical agencies as a service industry, even though the activity remains manufacturing,” he explains.

Base for global firms

The reality is that many high-profile global brands are manufactured in the UK.

Toyota of Japan, BMW of Germany, and Ford of the US are just a few international firms with substantial manufacturing facilities.

Nissan has the most productive car plant in Europe based in Sunderland, north east England.

Hi-tech centre of excellence

The UK’s growing skills base and culture of innovation have favoured the rise of a knowledge-intensive manufacturing sector, which sets it apart from low-cost economies.

Between 1996 and 2005 the number of relatively unskilled workers fell from 37% to 27%.

Per head of population the UK contributes more to world science than the USA, France and Germany.

Future growth assured by strong economy

The UK government is committed to building upon these principles to further increase efficiency.

In February this year an article by the Treasury and the Office for National Statistics described how through a commitment to spending on research and development the government hoped to push productivity levels further.

As the European economy recovery gathers pace many companies will see a real investment opportunity for manufacturing goods.

Inflation in the UK is falling and the UK has experienced 60 successive quarters of economic growth.

Story links

BERR – Productivity and competitiveness

Financial Times – Industry growth hits three-year high

ONS – International comparisons of productivity