Is the UK manufacturing sector picking up pace?

Depending on who you’re inclined to believe, the UK manufacturing sector is either thriving or teetering on a cliff edge.

There appears to be no in-between among reports, with The Guardian dishing out doom and gloom on a conveyor belt and industry publications like The Manufacturer reporting a much healthier outlook. So, what’s the truth of the matter?

The Office for National Statistics (ONS) shows that the UK manufacturing sector has increased by 1.4% a year since 1948. It also shows that the sector contributes 11% of GVA and 44% of total UK exports – hard facts in favour of a healthy sector.

But wait, hasn’t the sector’s GVA contribution declined over the years? It has, but there’s a reason – services that would traditionally have been allocated to manufacturers such as building services and security are now allocated to different sectors. So, it’s no surprise that the overall percentage has decreased over time.

Also, as The Manufacturer notes, the industry is calling for the true value of the manufacturing sector to be recognised by taking this into account. They predict the actual GVA is nearer 19% – an 8% increase on the current stat.

There’s the official statistics. What’s everyone else saying?

The CBI

A 2018 survey of 357 manufacturers conducted by CBI found that new orders were expanding at a rate of knots. A pick-up in output growth is giving the industry optimism for the years ahead, although there is a niggle. That niggle is a slowdown in new export orders, but despite this, optimism about export is unchanged.

Another survey conducted by CBI, this time of 379 manufacturers, found that 39% of manufacturers reported total order books to be above normal, while 24% of manufacturers reported their export order books were above normal. In all questions of output and orders, the survey found positive balances – again, hard facts in favour of a healthy sector.

Markit/CIPS

The Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) shows that manufacturing growth has been lacklustre in 2018.

The latest report published just a few days ago shows the sector has seen zero growth. The monthly index makes for no better viewing in months past, with the UK manufacturing sector hitting a three-month low in July, although it rose slightly in May on April from 53.9 to 54.4. It’s currently at 52.8, so has seen a steady decline.

The PMI is an indicator of economic health for the manufacturing sector. It provides information on current market conditions, so is always a decent indicator of sector growth or decline. If you take only what the index says, you would reach the conclusion that the UK manufacturing sector is in the doldrums.

An outlook for the future

Uncertainty over Brexit means no clear outlook for the UK manufacturing sector can be forecast. The biggest fear is that a no deal Brexit could wipe out much of the export market, which would be disastrous because manufacturing accounts for 44% of all exports.

EEF (the manufacturer’s organisation) has made a number of recommendations to mitigate the risks. The reports are well worth reading for industry folk.

Speaking with British manufacturers, most are optimistic about the future despite uncertainty over future trade. For now, order books are full, and the industry is contributing its fair share to the UK economy. That’s what the statistics show and despite what you might read, uncertainty over Brexit hasn’t tanked the sector.

Author

Andrew Park

Consultant

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