Manufacturing is still a pivotal component of the UK economy
THERE seems to be a continuing myth regarding the status of the manufacturing sector in the UK which often portrays it as outdated and making minimal contributions to the nation’s economic prosperity.
However, the latest report from the Manufacturing Technologies Association (MTA) aims to dispel this fallacy by demonstrating the significant positive influence that manufacturing exerts on the UK economy.
Its True Impact of Manufacturing Report shows that the sector remains a pivotal component of the UK’s economy, directly employing a substantial workforce of 2.6 million and contributing £184bn to gross value added (GVA) in 2022. However, it is not just one homogenous sector and its diverse nature makes varying contributions to the economy. For example, food product manufacturing stands out as the largest subsector, accounting for 13% of manufacturing GVA (gross value added) and 17% of employment.
This may be due to its perishable nature and local preferences, making it less susceptible to outsourcing. In contrast, industries like textiles and leather products contribute less to manufacturing output and this is probably being affected by more efficient production opportunities overseas due to their lower value.
There are also varying contributions by manufacturing to the prosperity of different parts of the UK. As a proportion of the total economy, manufacturing has the greatest importance in Wales where it accounts for 16% of GVA as compared to only 2% of GVA in London. In areas such as Wrexham or Flintshire, the direct economic contribution of manufacturing is greater still where it accounts for more than 20% or more of total employment.
Overall, the manufacturing sector offers higher-than-average wages, with the median wage exceeding the UK average by 11%, emphasising its role as a provider of quality employment opportunities, usually in those de-industrialised areas that have been hit hard by successive recessions.
The sector also makes other important contributions. For example, manufacturers accounted for a 47% of business R&D investment, emphasising their focus on innovation and productivity enhancement. More importantly, this investment not only benefits individual firms but also leads wider impacts that bolster the UK’s global competitiveness. Manufacturing’s export orientation also makes it a significant contributor to UK export revenues, with manufactured goods constituting more than a third (35%) of the nation’s goods and services exports.
However, it is through the contribution to productivity that the manufacturing sector makes a real difference with an average GVA per job of £75,000, surpassing the overall economy’s average by 33%. Much of this is down to the capital-intensive nature and reliance on advanced technologies by the manufacturing sector which, in turn, enhances competitiveness and fosters economic growth. This trend has persisted for the past 20 years, and more recently manufacturing GVA per job increased by 1.2% annually between 2016 and 2022 as compared to the broader economy’s 0.5% growth rate.
Of course, not all manufacturing firms are productive, but this suggests that by prioritising initiatives that promote innovation and technology adoption, policymakers can leverage the sector’s potential to drive broader productivity gains, thereby improving prosperity across the UK.
The other important factor about the manufacturing sector is the codependency it has with supply chains that service the industry. Once these indirect impacts and additional impacts of the firms within these supply chains are considered, manufacturing supported £348bn of GDP and five million jobs in 2022.
Therefore, considering the direct, indirect and induced impacts of manufacturing, the sector’s total impact on UK GDP was estimated at £518bn in 2022.
In other words, for every £1m contributed by the manufacturing sector to UK GDP, a further £1.8m is supported across the wider economy through indirect and induced multiplier effects. Similarly, manufacturing supported a total of 7.3 million jobs in 2022, illustrating its extensive reach and influence.
The good news is that the pivotal role manufacturing plays in driving economic growth is being appreciated by the UK Government, which has introduced a £4.5bn Advanced Manufacturing Plan to support dynamic sectors and foster innovation within the industry.
Unfortunately, there seems to be little evidence that the Welsh Government or sector bodies such as Industry Wales are making any substantial efforts to maximise the impact that this funding could have on Welsh manufacturers and to ensure that we get our fair share of this support.
Indeed, if the funds for the Advanced Manufacturing Strategy were distributed by the economic intensity of manufacturing within each devolved and regional economy, Wales would be in line for £720m to boost the sector’s competitiveness.
Of course, the chances of anything like that happening are slim but given the significant contribution of manufacturing to well-paid jobs, innovation, and exports within one of the poorest economies in the UK, it is imperative that Welsh politicians and policymakers maximise the potential of the sector over the next few years and in doing so help boost the poor productivity record of the Welsh economy.