England Great Britain: The British Industry has not kept pace with the economy

Author Stéphane Itasse

The British economy is buzzing: According to the Economist Intelligence Unit the BIP in 2015 should rise by 2.3 %. The Engineering Employers' Federation (EEF) even expects 2.6 %. However, the manufacturing industry is not in very good shape, according to the latest figures the EEF has lowered its prediction.

The British machine building industry is growing at present but at a slower rate than the rest of the economy. +++ Verschiedene Werte +++
The British machine building industry is growing at present but at a slower rate than the rest of the economy. +++ Verschiedene Werte +++
(Photo: Renishaw/Steven Hodge)

For this year the EEF sees a growth of 1.5 % in the manufacturing industry. Even though companies had expected a strong activity during the course of the year 2015, the results of the second quarter emphasized the weak trend in the branch for the first half of 2015. The incoming orders primarily dropped in the last quarter. The sector is still in a positive terrain but it shows a steady reduction in key indicators, mainly in the domestic demand and the domestic investment plans.

Particularly the weaker activity in the oil and gas sector burdened the upstream industries. Postponed investment plans put the domestic orders under pressure. At the same time the decline in the investment expectations can lower the investment growth to the lowest level since 2012. “The manufacturing industry is growing further but not at the rate that we expected at the beginning of the year”, says Lee Hopley, chief economist of the EEF.


British machine building sector is feeling the weakness of the industry

Even the machine building sector is feeling the weakness of the industry In the first quarter of 2015 the incoming orders were below the prior-year level, reports the Engineering and Machinery Alliance (EAMA) in their Business Monitor. On the other hand the figures for jobs and investments have remained strong. “The results are mixed. Companies in the UK seem to be gaining less than in the last year and the same signals can be seen on the export side”, says EAMA chairman Martin Walder.

A reason for the significantly low export expectations (index level-1 in the first quarter of this year after +23 in the quarter in the previous year) could be his view on the strength of the British Pound. However the foreign orders will look a lot better (currently +10 after +15 in the first quarter 2015).

On the other hand the companies will continue to create jobs and invest like in the last three years. “If we include all kinds of investments and the training of employees as well as capital investments, we see that the share of the investing companies has risen from 45 % in the first quarter of 2013 to 55 % in the previous year's first quarter and 65 % in the first quarter of the this year”, explains Walder. The machine building companies in the UK seem to be investing in the skills of their employees, in research and development as well as in other intangible assets to improve their competitiveness.

The machine tool industry is worried about its future

In the long term this branch of industry is worried about its sustainable future. “The politicians understand that we have to bring a new balance to the economy. And they encourage investments, innovations, exports as well as productivity and most importantly, the development of the knowledge base of our nation”, says Mark Ridgway, the outgoing president of The Manufacturing Tools Association (MTA). He warned: “If you want to tackle the trade deficit, you need a manufacturing industry. If you want to strike a new balance in the economy regionally you need a manufacturing industry. If you want a strong science and technological base, you need a manufacturing industry.” The message is simple for Ridgway. Everything is based on a manufacturing industry.

The outgoing MTA-President expressly warned of complacency: “We went through the most severe recession that we can remember and we still have a fiscal deficit. This has effects on the foundations of our industry, our economic infrastructure”, says Ridgway. The professional skills, the mechanical equipment, the supply chains, all these things interact in a system and make the industry efficient and internationally competitive.

The British industry needs a new foundation

“This network of interactions, this new eco-system of the manufacturing industry cannot be created overnight”, anticipates Ridgway. He goes on to say that, “We must make new investments in our professional skills and our technical basis. We must recapitalise our industry and strengthen the density of our supply chain again to create a critical mass for the industry which is so important for our national economy.”

The British government is actually trying to resuscitate the industry in the country. So there are funding programmes for foreign investors, mainly the Global Entrepreneur Programme must be mentioned here. The advertisement of the investment promotion UK Trade & Investment is primarily aimed at supporting innovative companies to grow from the UK as a strategic location. With the help of this program 280 investment projects have been realized in the last four years in the volume of more than 1 billion British Pounds and over 2000 jobs have been created.

Investment promotion in the industry has not been very successful

However, if we observe the target industries of foreign investments, the gap between the manufacturing industry and the overall economy becomes apparent even here: According to the investment promotion UK Trade & Investment in the financial year 2013/14 there were a total of 229 investment projects in the software and computer services sector, followed by financial services with 159 projects and business and consumer services with 128 projects. The automobile industry on the other hand has acquired about 100 investment projects with a foreign background, the electronics industry 66, renewable energies 61 and machine building 54 investment projects respectively.

In the coming one and a half years investors still expect substantial insecurity: At the latest by 2017 the British will have to vote whether they want to remain in the European Union. Even if the industry associations and the oppositional labour party support an EU-membership, the outcome of the referendum is as uncertain as the consequences of a possible EU-exit.