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Lee Hopley has worked as an Economist at EEF for the past nine years. As Chief Economist she leads EEF’s work on the economy and industrial policy. This encompasses both macro-economic issues and...
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Why UK Manufacturing Can't Be Taken For Granted
Written by Lee Hopley
Chief Economist – EEF, the manufacturers’ organisation

Published: 16 Jul 2012
The UK’s economic recovery was always expected to evolve in fits and starts, economies always do after financial crises. For the past couple of years forecasters have been expecting the process of economic rebalancing to begin in earnest, but so far the shift towards trade and investment filling to void left by retreating consumers and government has been patchy. The prospect of another quarterly GDP contraction will therefore not only be difficult for policy makers to swallow, it will also bring to the fore some, as yet unanswered, questions about the future direction of our economy. 
Can we generate growth in the short term and will it be the balanced growth we need to make our economy more resilient to shocks in the future? Since the onset of the financial crisis, UK manufacturing has been looked upon as a potential saviour of the recovery, with the Chancellor calling for a ‘march of the makers’ last year. While manufacturing’s recovery clearly isn’t what it was some 18 months ago, not least as a consequence of continuing turmoil in our major market, the capital intensive nature and international focus of the sector still leave it in pole position as far as rebalancing the economy goes. 
Indeed the latest trade figures show that manufacturers are capitalising on their international reach. Goods exports to non-EU markets have overtaken those to Europe and there are still double-digit growth rates in sales to economies such as China and South Korea. Manufacturing is innovative and that’s also good for our economy in the long run. Almost three-quarters of all business expenditure on R&D takes place in the manufacturing sector.  This innovation underpins productivity growth and ensures that we compete on value rather than price. And given the range of significant challenges we face in terms of environmental pressures and demographic changes, we need to be generating some of the solutions in the UK rather than relying on buying them from someone else. 
As we look to the second half of this year risks still abound and sentiment in manufacturing and the wider economy seems to have shifted down a gear. Across manufacturing there is an appetite to invest and go further in accessing export market opportunities, but both could be held back by a more fragile outlook for the global economy and continuing problems accessing finance on the right terms.
But let’s be clear, we cannot lay all the blame for our economic woes at the feet of eurozone leaders. The government needs to be as clear about its economic priorities as it has about its fiscal strategy. The Fiscal Mandate provides a focused set of measurable targets for the public finances which are independently monitored; we are lacking a comparable approach on growth. 
So how do we turn this around? Firstly government needs to spell out what its economic ambitions are and what economic rebalancing is in practice. This must resonate with businesses and go with the grain of the private sector. Without this, the rationale for tax and spending decisions is opaque and it becomes far from clear that policy trade-offs are being made in a way that is positive for long-term investment and wealth creation.
My view of the component parts of a better balanced economy involves more companies bringing new products and services to market; more globally-focused companies choosing to expand in the UK; a lower cost of doing business and a more productive and more flexible labour force. If we saw all parts of government committed to delivering on objectives like these this would send a strong message to the private sector about the sort of economy we are seeking to build, in the same way that departments are now hard-wired to cut spending.
There are reasons to be confident about manufacturing and the UK’s ability to generate sustainable economic growth, but we cannot take this for granted. Companies can continue to make productivity gains, step up their development of workforce skills and look for the next growth opportunity. The risk for better balanced growth in the UK is they invest to take advantage of it somewhere else.

EEF economics blog

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