A balanced case for growth

Manufacturing output and productivity have been growing year on year, but growth in manufacturing output has been slower than overall economic growth, with yearly increases of GDP averaging 2.6%. Some areas of manufacturing have been enjoying strong growth. Trade organisation ADS claims that the aerospace sector grew by 9.4% in 2013: it calculates that the sector has been growing ten times faster than the economy as a whole. While the economy has finally surpassed its pre-recession peak, manufacturing output, according to the FT, is still 4.4% lower than before the crisis, leaving the economy more heavily skewed towards the services sector. So, it seems that there has not been the shift that we were promised in George Osborne's 'March of the Makers' statement in 2011. The idea that Britain would 'rebalance' away from its large services sector, which accounts for 80% of GDP, has proved 'spectacularly wrong', according to The Economist. Eurozone is a cause for concern The UK only contributes 5 to 10% of EU manufacturers' product sales, while Germany accounts for over a quarter. But even the German economy, the second largest importer of UK manufacturing, is shrinking. German exports fell 5.8% in August from July levels. The Eurozone is also a cause for concern. The IMF said recently that there is a four in ten chance of another recession in the Eurozone, and there seems little prospect of a significant upturn in demand in the near future. The sector will await the outcome of the general election in 2015 with interest; of particular importance will be the development of government policy around the following issues: ? Industrial strategy: Vince Cable, speaking at the 2014 Global Manufacturing Festival dinner, stressed that planning strategically for the future is essential to remaining competitive. Creating an 'industrial strategy' that engenders cross-party support would last beyond the life of one Parliament and is more akin to the long-term financial planning used in industry itself, and would be key to growth. Optimism from manufacturers is generally cautious as to whether such laudable aims can be achieved in an essentially party political system – time will tell. ? Energy policy: Manufacturers are paying up to 50% higher energy costs than those in France and Germany, according to the CBI. A reduction in energy costs is the single biggest lever the Government could pull to create a favourable business landscape for manufacturers throughout the UK. If this doesn't happen, could we see a shift to manufacturers moving overseas to avoid the high energy costs in the UK? Energy security is also a key issue for manufacturers going into 2015. ? Europe: Will we have an in/out referendum? What would this mean for the sector and wider economy? There are significant opportunities ahead for the manufacturing sector. Procurement for Phase One of HS2 has begun and the recent announcement around HS3 will also bring opportunities, as will Network Rail's latest investment plan which envisages a total spend of £37.5bn between April 2014 and March 2019. EDF's new nuclear power station at Hinkley Point is progressing, with several contracts already being awarded. The Government hopes five new plants will be functional by the end of the next decade. MAS and the Nuclear AMRC (based in Rotherham) have introduced Fit for Nuclear (F4N), which lets companies measure their capabilities against industry standards and helps them bridge gaps to meet requirements. It also offers participating SMEs the chance to apply for matched funding for business improvement or research and development projects. Questions and challenges remain These are significant and substantial infrastructure projects and drivers of our economy for the next two decades and more. The questions and challenge remains – what role will UK manufacturing have? Remanufacturing and the circular economy are buzz words in manufacturing at present. A report by the Sustainable Resource Group says that the value of remanufacturing to the UK has the potential to increase to an estimated £5.6bn. Earlier this year, UKTI and the MAS launched Reshore UK, a service to help companies bring production back to the UK. So will we see a trend away from concentrating manufacturing in a single low-cost country, moving it to facilities nearer to markets? A recent EEF survey suggests that one in six manufacturers have re-shored some production over the previous three years. Will that trend continue?