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What Roger Bootle thinks about UK manufacturing

Roger Bootle, Managing Director of Capital Economics, shared his thoughts in an article in The Telegraph today.

He examines the question: “Does manufacturing matter?” To which he answers ‘yes’. And to the question: ”given that we’ve got so little of it left, aren’t we essentially finished?” he answers ‘no’.

Manufacturing still has an important role in the UK economy

 

UK manufacturing’ share of GDP has fallen from over 30% in the early 1970s to 11% today. But this is a natural part of economic growth, since as people get richer they tend to spend disproportionately on services. Plus, the US has seen a decline from 22% to 12% and France from 17% to 13%. Germany’s share of GDP is still about 21% but has fallen from 35%.

In fact, manufacturing’s share is not ridiculously low, as it is still larger than financial services, which is about 10% of GDP. Also, our biggest manufacturers are in aerospace and pharmaceuticals and as these are not directly consumer-oriented we tend not to notice how well the UK is doing. However, he does think that in recent years manufacturing’s share has fallen too far and too fast and gives four reasons for this.

Firstly, and most importantly, we have had a level of sterling which has been too high for manufactures to be competitive.

Secondly, the banks are not looking to support firms which need heavy fixed investment with a long-term payoff, such as manufacturing requires.

Thirdly, our education system is not emphasizing the practical skills needed by manufacturers.

Fourthly, public attitudes have turned young people away from manufacturing.

He believes we have made no progress on the last three, but notes a big change in the first which saw manufacturing output grow by 3.6% last year, compared to a growth in services of only 1.1%.

He thinks that a few years of decent growth could see manufacturing’s share of GDP returning to 15%.

The full article can be accessed here.

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