Is manufacturing worth a lot more than we think?
27 June 2019
According to national accounts, manufacturing contributes only 10% to UK GDP - but this is vastly misleading and underestimates how vital the sector is to the economy, new research says.
Research conducted by the Institute for Manufacturing (IfM) shows that the real economic value of manufacturing is significantly higher than is currently understood by policy makers.
National manufacturing activity is normally measured by counting the output of firms whose main activity involves the transformation of materials or assembly of components into new products, but this misses out huge areas of what constitutes modern manufacturing.
Dr Jostein Hauge, one of the authors of the report, explained:
“The difficulty lies in trying to measure manufacturing as a single category. It is inherently more complex. Economic value of manufactured goods increasingly depends on activities that are officially categorised as belonging to other sectors of the economy. A range of manufacturing-related services are excluded from the manufacturing category.”
The current SIC code system in particular is singled out as an outdated way of classifying manufacturing. Increasing productivity - where fewer people are needed to produce more units - can also mislead policy makers into thinking manufacturing’s value has dropped, the researchers say.
Commenting on the findings, Seamus Nevin, Chief Economist at Make UK, said:
“Manufacturing businesses contribute nearly 3 million mostly high-paying jobs, half of UK exports, the bulk of this country’s R&D spend, and the UK is today the 9th largest manufacturing economy in the world in GDP terms. And, as this report shows, those figures are probably significant underestimates.
“An increasingly outdated understanding of what modern manufacturing actually is means policymakers have neglected the sector in the misguided belief that services, not manufacturing, is where the future potential for innovation and productivity growth lies. This report is a clarion call for politicians of all parties to update their understanding and recognise the central importance of manufacturing not only to local regions but to the wider UK economy as well.”
The report is available for download here.