At a glance
- Recovery in manufacturing under way, but it is not across the board and is concentrated in handful of sectors
- Aerospace, pharmaceuticals and transport leading the way, while construction is still lagging
- A relatively small group of high achieving mid-sized manufacturers are leading this manufacturing revival
The UK manufacturing sector looks to be finally recovering from the turmoil it suffered after the financial crisis more than five years ago.
But the recovery, so far is unevenly distributed, is concentrated in a handful of sectors and enjoyed disproportionately by a relatively small group of high achieving mid-sized manufacturers in key sectors.
UK manufacturing output rose sharply by 1.2% in September and industrial production is up 0.6% over the third quarter of 2013 overall. Figures from the Markit/CIPS UK Manufacturing PMI report suggest an even stronger recovery may be under way. Its index at 56.0 is near a two-and-a-half-year high and the growth rate of new orders is at a 19-year high. It also said manufacturing output is growing at a quarterly rate of around 1%-1.5%.
Where manufacturing growth is coming from
- Transport and pharmaceuticals are star sectors, but recovery is spreading
- Medium-sized businesses are outperforming small and larger rivals
- Most growth businesses are export focused
- Export growth is coming from Asia, Africa and Eastern Europe
The figures suggest the UK will join a handful of other star economies and be among the top global performers when it comes to manufacturing growth this year, but the recovery to date has been uneven, says Rachel Pettigrew, Senior Economist at EEF, a manufacturing trade body. “Aerospace and transport have had a really strong recovery while others, including the sectors linked to construction, are struggling a lot more,” she said.
Exports are driving much of it, says Pettigrew. “There’s a lot happening in the whole aerospace supply chain and the UK automotive sector has also done better than the rest of Europe because we tend to produce a lot of luxury vehicles, which have been doing well in emerging markets like China,” she noted.
The UK made 1.5 million cars this year, a post-financial crisis record. Both Nissan and Tata, owner of Jaguar Land Rover, are seeing strong growth and extending production. Last year, car exports, worth more than £30 billion, accounted for 10% of UK exports – a measure of the sector’s importance. Other star growth sectors include pharmaceuticals and the computer sector, according to figures from the Office of National Statistics.
A sustained recovery
Happily, it seems the recovery is spreading. The EEF’s forecast for next year is for most manufacturing sectors to show some growth from six to 11 of the 13 sectors, says Pettigrew.
“We are seeing a sustained recovery and we are expecting to see that bed in further,” she said. “Our most recent survey saw big pick-ups in terms of investment and employment, which was largely driven by smaller companies. It suggests supply chains are starting to respond to a pick-up in orders and output. Companies are seeing a need to invest and increase employment.”
Investment is not only in plant, but also in skills, training and product development. Innovation, it seems, is high on the list of activities for manufacturers looking to grow.
There are also early signs that access to finance – a key factor that has held businesses back from investing in expansion – is also improving, although it’s not reflected in the overall lending figures yet, adds Pettigrew.
Despite the predictions for a broad based sectoral recovery in manufacturing, the nature of that growth may well be concentrated in a relatively small group of companies. It suggests businesses serving the manufacturing sector would do well to focus not just on the faster growing sectors but also on the star performers within them.
A relatively small group of dynamic mid-sized businesses are where to look. In the past five years, Britain’s mid-sized businesses have expanded by more than 5%, outperforming small and large companies and contributing £270bn to the economy in 2012, according to figures from the CBI.
We are seeing a sustained recovery and we are expecting to see that bed in further. Supply chains are starting to respond to a pick-up in orders and output. Companies are seeing a need to invest and increase employment
Rachel Pettigrew, Senior Economist at EEF
A separate report by Deloitte, meanwhile, has identified 1,000 UK firms that are growing far faster than the average and a smaller core group of 50 superstars who grew a remarkable 73 times faster than the national average between 2009 and 2012. The study, called Businesses Leading Britain, revealed that the leaders share key characteristics: they are export focused and occupy strong positions in profitable niches.
And the most active regions for export growth now lie in Asia, Eastern Europe and Africa. According to figures from the Institute of Directors (IoD), since 2010 Asia has taken over from the United States as IoD members’ second largest export destination and its members see Asia as the most likely region in which they will grow their export activity over the next five years.
Although the European Union retains the most popular export market, far fewer exporters now expect growth in trade with the EU over the next five years, says the IoD, which has identified the ‘IoD 10’ that offer growth opportunities for UK businesses. They are: Columbia, Ghana, Kenya, Serbia, Slovakia, Philippines, Russia, Vietnam, Morocco and Indonesia.