New EPH series on manufacturing
In this new series of weekly articles, the Eastern Powerhouse explores the significance of the manufacturing sector to the national and regional economy. In the coming weeks we will discuss important sub-sectors and show case manufacturing businesses in the East. We aim to assess the potential for growth in the region’s manufacturing sector and the policies that are needed to realise this. Please contact the EPH with suggestions that you would like us to cover.
1. The rise and fall of manufacturing in the UK
Manufacturing was at the centre of Britain’s industrial revolution contributing to the nation’s wealth and global dominance as the world’s largest economy. By 1870 the UK was still the workshop of the world, and the country as a whole enjoyed the highest income per head in the world. Other nations would soon start to close this gap, but manufacturing continued to make up almost half of the UK economy into the post-war decades before losing its competitive advantage and experiencing a relative decline from the 1960s onward. The recession of 1979-81 hit manufacturing particularly hard turning what had been a long-standing surplus in manufacturing trade into a deficit. A position which the sector has never recovered from.
The UK’s process of deindustrialisation and corresponding shift to service industries, has been deeper and more rapid than other advanced economies like the US, Germany and France. Since the 1990s the UK has lost over a third of its manufacturing strength. As a share of GDP manufacturing has fallen from 30% in 1970 to just over 16% in 1990 and less than 9% in 2022.
Chart 1: Manufacturing in the UK as a percentage share of GDP
Despite this decline, manufacturing remains one of the most important and productive sectors in the UK economy. Employment may have fallen considerably, from 21% of the UK workforce in 1982 to 8% in 2023, but manufacturing output has increased. The Gross Value Added (GVA) of the manufacturing industry in the United Kingdom amounted to approximately £200 billion in 2023, compared with £121 billion in 1990. Wages are on average 12% higher in the manufacturing sector than economy as a whole.
Chart 2: Gross value added of the UK manufacturing sector (1990 – 2023)
The latest analysis from Make UK, the manufacturers organisation, confirms that the UK remains the ninth largest manufacturing nation in the world. The sector contributed £217bn in output to the economy last year, supporting 2.6m jobs. Average salaries rose by £2,281 to £38,769 compared to £34,698 in services and £35,404 in the wider economy.
The US remains the top export destination for manufactured goods, worth £61.8bn and up from £56.7bn last year, followed by Germany (£33.9bn), the Netherlands (£31bn), Ireland (£28.2bn), France (£24.5bn), China (£21,4bn), Belgium (£17.7bn), Switzerland (£12.9), Italy (£10.4bn) and Spain (£9.0bn). In terms of imports, it’s Germany who we bought the most manufactured goods from, spending £73.8bn over 12 months.
2. The changing nature of manufacturing
Manufacturing encompasses a wide range of economic activity including other production industries such as mining and quarrying, energy supply, water supply and waste management. The sector in the UK has changed considerably over the past fifty years. It is now smaller and less diverse and generally less technologically advanced by comparison with the past and other manufacturing nations. However, the UK does possess world leading industries including advanced manufacturing that uses new knowledge and innovative technologies such as robotics, 3D printing, artificial intelligence, high-performance computing and modelling, to produce complex products like aeroplanes, automotive vehicles, medical devices, pharmaceuticals, electronics and high-tech consumer products.
Some of the UK’s largest manufacturing industries include:
Pharmaceuticals – AstraZeneca is the UK’s leading leading Biopharmaceutical company focusing on prescription pharmaceuticals. GlaxoSmithKline is the 6th largest pharmaceuticals company in the world. Mainly concerned with prescription pharmaceuticals but also consumer brands.
Aerospace and Defence – Rolls Royce are the 2nd biggest jet engine manufacturers in the world. Alongside jet engines, they also provide engines for ships and submarines. BAE Systems produce a wide range of military vehicles, including the Typhoon fighter jet, the Tornado fighter-bomber plane, the Challenger 2 tank, and the Queen Elizabeth class aircraft carrier.
Food, Household and Personal Care – Unilever is the world’s 3rd biggest consumer goods company, with over 400+ brands. Associated British Food mainly deals with consumer food brands but they are also have an interest in companies such as British Sugar and clothing.
A breakdown of the UK’s manufacturing sub-sectors is provided in the table below. The Chemical and Pharmaceutical industry represents the largest share of manufacturing output (41% of all GVA) and the largest share of exports (19.4%) followed by Transport. The Food and Drink sector has the largest share of investments in research and development among all UK manufacturing.
Sub-sector | Exports of Manufactured Goods (2023) | Gross Value Added (2022) | Research & Development (2024) |
Food and Drink | 8.5% | 4% | 21% |
Metals | 8.3% | 3% | 9% |
Machinery | 14.1% | 6% | 6% |
Chemicals & Pharmaceuticals | 19.4% | 41% | 13% |
Electronics | 9.7% | 10% | 8% |
Transport | 14.3% | 27% | 15% |
Rubber, Plastics and non-metallic Minerals | 3.7% | 2% | 7% |
Electrical equipment | 4.4% | 3% | 2% |
Other | 17.7% | 4% | 20% |
Source: MakeUK, 2024
3. Manufacturing in the East of England
Manufacturing is an important sector for most places across the East of England although it accounts for just 5% of all businesses and 7% of all employment in the region, which is below the national average. However, the East has a higher level of specialism in knowledge intensive manufacturing compared to the UK as whole. NB: Part 2 of this series will provide further analysis of advanced manufacturing in the East of England.
The North West of England remains the leading manufacturing area of the UK, closely followed by the South East. The East of England is ranked 6th among all regions and nations in the UK for manufacturing output.
GVA (£bn) 2022 | % of regional output (2022) | Numbers employed (2024) | % of regional employment (2022) | |
North West | 29.5 | 13.4% | 330 | 8 |
South East | 26.1 | 7.8% | 278 | 5% |
Yorkshire and Humberside | 22.1 | 14.6% | 287 | 10% |
West Midlands | 21 | 13.1% | 296 | 10% |
East Midlands | 20.5 | 15.9% | 258 | 10% |
East of England | 19.7 | 10.4% | 229 | 7% |
South West | 17.8 | 10.3% | 243 | 8% |
Scotland | 16.9 | 10.2% | 183 | 6% |
Wales | 11.5 | 15.4% | 154 | 10% |
London | 10.1 | 2% | 123 | 2% |
North East | 9.4 | 14.9% | 110 | 9 |
Northern Ireland | 5.9 | 11.9% | 95 | 10% |
Source: MakeUK, 2024
But this masks the significant increase in manufacturing output that has taken place in the East of England over the last decade. Since 2013 output in the region has increased by 15 per cent, with 229,000 people now employed in highly skilled jobs, many of them in high value sectors such as Pharmaceuticals and Precision Engineering.
Three major sectors account for almost four tenths of East of England manufacturing production with the largest being Food and Drink with 13.3 per cent of industrial output. This is followed by Pharmaceuticals at 12 per cent and Machinery & Equipment at 10.8 per cent. The East of England has the largest proportion of sectors not in the top three, highlighting the diversity of production across the region.
Last year the East of England accounted for nine per cent of the UK’s total goods exports with the EU being the dominant destination (49 per cent). This is followed by the United States at 21 per cent and Asia & Oceania at 14 per cent.
In fact, the East is the only region in England where manufacturing jobs have increased in the last year. Every other English region saw manufacturing jobs fall. Output is now almost 10 per cent higher than pre-pandemic levels. This reinforces the importance of the sector to the region.
4. The new government’s approach to manufacturing
There has been a chronic failure to invest in UK manufacturing for many decades, with the UK economy and investment skewed towards shorter-term returns and less capital-intensive services industries, in particular financial services and the interests of the ‘City’. Manufacturing firms are beginning to increase their investment, with £38.8bn worth of investment taking place in the past year, but more is needed. A stronger manufacturing sector needs the support of a financial sector focussed on production rather than ‘innovating’ new financial products.
The UK manufacturing sector also needs greater economic diversity, including a larger and more vibrant medium sized business ownership with improved funding arrangements and incentives for SME growth. The stimulation and protection of the UK manufacturing value chain is vital to regional and national growth. These steps would help to turn the UK economy away from an over-reliance on services and the banking sector to rebalance the economy and society in regional terms. This requires active government policies to help increase investment in education, skills, technology and innovation.
The new Labour Government has committed to a mission-driven approach to long term economic growth in Britain. Their manifesto recognises the vital role manufacturing must play in addressing long-standing productivity problems but also in helping to rebalance the UK’s economy. The detail is light but advanced manufacturing, pharmaceuticals and life sciences as well as the production of new green technologies are highlighted as major industrial sectors where the Government wants the UK to be world leading. Flagship policies like the National Wealth Fund, and the ambition to make the UK a clean energy superpower with the creation of the Great British Energy Company, will help in this regard. But this must be anchored to a new long-term industrial strategy that identifies the strengths of the manufacturing industry in all regions and nations. This strategy should be allied with the local growth strategies and priorities of each region, including infrastructure and innovation.
There is now an opportunity for the sector in the East of England to work with the new government on the development of a new long-term industrial strategy for manufacturing, to unlock vital investment needed across the region to build on the recent growth by turbocharging manufacturing output and skilled jobs. The Eastern Powerhouse is calling on all manufacturers and industry groups in the region to join us in shaping this new future and achieving a manufacturing revolution in the East.
Read part two next week – advanced manufacturing in the East of England.