Bright outlook for UK manufacturing

The forecast for UK industry is good, but dark clouds, including a skills gap and uncertainty over EU membership, hang over what could be a much brighter scene


Like the curate’s egg, the UK manufacturing sector is part good and part bad. Unlike the proverbial egg, however, the state of manufacturing has little that is truly so terrible to cover up these days.

The Purchasing Managers’ Index, which measures indices such as company output, employment and new orders, jumped to 53.0 in January, up from 52.7, the 23rd consecutive month of growth.

The food and drink industry turnover grew £2.7 billion and gross value added increased by £1.4 billion between 2012 and 2013, the latest figures available. Food and Drink Federation members have also decreased their CO2 emissions by 35 per cent, ahead of the 2020 target date.

The textiles industry has experienced ten successive years of export growth and annual growth reached 11.8 per cent in 2013. According to the UK Fashion & Textiles Association, sales across the clothing and garment-making industry have surged 20 per cent in the past four years to £11.5 billion.

But some vertical sectors shone less brightly last year. The chemical industry, including pharmaceuticals, contracted by 1.4 per cent from January to November 2014. However, chemical production, ex- pharmaceuticals, increased by almost 4 per cent in 2014 compared with a contraction of 1 per cent in 2013, Stephen le Roux, head of economics at the Chemicals Industry Association, points out.

Car factories in the UK produced more than 1.5 million vehicles last year, the highest number since 2007

Output of steel in the UK in 2014 was virtually unchanged at 11.9 million tonnes, just 0.2 per cent higher than 2013.  According to UK Steel, the main cause of the flat line has been the dumping of cheap steel into EU markets. Imports rose to take around 60 per cent of the market compared with 56 per cent in 2013.

LOW-CARBON PREMIUM

UK Steel says the government’s decarbonisation policies, through heavy subsidies on renewable energy, have a much more harmful effect on electricity prices than falls in the price of oil.  “These [subsidies] currently add 26 per cent to the typical electricity price paid by an energy-intensive consumer, according to the Department of Energy & Climate Change,” says head of UK Steel Ian Rodgers.

Car factories in the UK produced more than 1.5 million vehicles last year, the highest number since 2007. However, for the second year running, the number of vehicles exported fell, reflecting a cooling off in European demand. Jaguar Land Rover in January said it would create 1,300 new jobs to build Jaguar’s first sports utility vehicle.

Pull statsWhere the UK fails is its dependence on foreign-sourced car parts. “The Society of Motor Manufacturers and Traders and others are predicting that the UK could make two million cars by 2017. But the full value of this growth will not be felt in this country unless the locally sourced content in these vehicles rises from its current level of around 30 per cent towards Germany’s 60 per cent,” says Dermot Sterne, managing director at Applied Component Technology.

More UK firms now have the capacity to supply big auto OEMs (original equipment manufacturers), he says. “It is just as likely to involve SMEs [small and medium-sized enterprises] moving up the supply chain to become tier ones or tier twos, or to become partners for larger international organisations.”

But to make something you must first invent it. Government now “gets” innovation, experts say, and some of the so-called catapults, managed by Innovate UK, a division of the Department for Business, Innovation & Skills, have actually overdelivered.

The Nuclear Advanced Manufacturing Research Centre worked with more than 450 companies in 2014, helping to create or sustain over 200 jobs and £400-million worth of new business, according to its February review.

It’s a similar story at the Manufacturing Technology Centre (MTC) near Coventry. Its original targets were 100 employees, ten industrial members and £10-million turnover by 2020. “We currently have over 350 employees and 80 members, and operate as an open-access centre, fully supporting smaller companies and collaborative research between both members and non-members,” says the MTC’s Nick Hickman.

“Government has really engaged with this agenda since the recession and has led the way with its industrial strategy, its vision of which sectors the UK should focus on over the next 20 years,” says Philip Greenish, chief executive of the Royal Academy of Engineering. “This framework is already creating ‘the pull’ that defines future educational and skills needs,” he says, but warns there is a huge amount still to do to encourage youngsters to take technical careers.

MIND THE SKILLS GAP

As ever, lurking in the background is the perennial skills gap. In its 2015 report, the organisation Engineering UK says: “The UK, at all levels of education, does not have either the current capacity or the rate of growth needed to meet the forecast demand for skilled engineers by 2022 – 257,000 new vacancies in engineering enterprises.” The shortfall is a serious, fundamental threat to economic growth.

Come May 8, Britain will know whether there will be a referendum on membership of the European Union. Terry Scuoler, chief executive of manufacturers’ organisation EEF, says the EU has been elevated to sit just beneath skills, access to finance and exports as the top priorities for UK manufacturing.

“Members’ support for staying in Europe has moved up from about 75 to 85 per cent. Our message on Europe is absolutely clear,” says Mr Scuoler.