UK manufacturing sector far larger than politicians realise

17-06-2019

Britain’s manufacturing sector is much larger than official figures suggest, according to a report for the government that underscores the broad impact on the economy of high tariff barriers with the EU.

The report argues that official statistics, which estimate that manufacturing output accounts for 9% of national income, are based on “outdated and inaccurate methods of counting” and the figure is much higher.

Carried out by Cambridge University for the Department for Business, Energy and Industrial Strategy (BEIS), the report shows how a larger slice of UK exports than previously understood are vulnerable to EU tariffs in the event of a no-deal Brexit.

The report avoids putting a fresh figure on the proportion of GDP accounted for by the sector but one of its authors said it was nearer 15%, once activities tied to the sale of UK-made products, including engineering support and contracted services, were included.

“It is essential that policymakers have accurate information on the size of manufacturing sectors in order to develop an internationally competitive industrial strategy,” said Eoin O’Sullivan, one of the report’s authors.

“In particular, policymakers need to be able to measure manufacturing in a way that better reflects how firms actually organise themselves into value networks.”

Manufacturing industries have declined as a proportion of overall activity in most developed countries, but has fallen more sharply in the UK than many of its rivals. In 1990, manufacturing accounted for 17% of GDP, according to official figures.

A steep decline in car production over the last year related to Brexit uncertainty and an escalation of Donald Trump’s trade war with China have pushed the manufacturing sector into recession. In April the UK economy shrank by 0.4% largely in response to a sharp decline in manufacturing output.

Ministers are expected to use the report as a more up-to-date guide to inform the government’s industrial strategy. But it will also be seen as a riposte to economists supporting no-deal Brexit who argue the manufacturing sector’s importance has diminished and, with agriculture, can be allowed to decline while service industries replace lost employment.

Seamus Nevin, the chief economist of the trade body for manufacturers, Make UK, said: “This report is a clarion call for politicians of all parties to update their understanding and recognise the central importance of manufacturing not only to local regions but to the wider UK economy as well.

“An increasingly outdated understanding of what modern manufacturing actually is means policymakers have neglected the sector in the misguided belief that services, not manufacturing, is where the future potential for innovation and productivity growth lies.”

Jostein Hauge, a co-author of the report, said a study last year for the Manufacturing Technologies Association estimated that manufacturing accounted for 23% of GDP, including a wider array of spin-off services that were only tenuously connected to the sector.

Source: The Guardian