The UK manufacturing landscape and its evolution
The largest manufacturing sub division is food production, followed by motor vehicles and fabricated metal products (based on sales)…
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The largest manufacturing subdivision is food production, followed by motor vehicles and fabricated metal products (based on sales). The ordering of the top sectors is slightly different when measured in GVA (Gross Value Added), with basic pharmaceutical manufacturing rising up the rankings to third.
The largest sub-division, food production, represented 20.8% of total manufacturers’ sales in 2023. However, as a relatively low value manufacturing sector, the food manufacturing sector is less dominant when considered in terms of gross value add (GVA), accounting for just 12% of total manufacturing GVA.
On the other hand, higher value manufacturing sub-sectors such as basic pharmaceuticals and the computer, electronic and optical equipment sub-sectors each account for just 3% of sales but a much more significant share of manufacturing GVA, at 9% and 7%, respectively. Fabricated metal products also account for a higher share of GVA compared with sales, with a 9% of manufacturing GVA compared with a 7% of sales value. These higher GVA figures reflect higher productivity in these sectors.
"Manufacturing also invests heavily in new technologies, with nearly half (47%) of total research and development (R&D) investment in the UK in 2022 made by manufacturers (Oxford Economics)."
MANUFACTURING’S CONTRIBUTION TO THE UK ECONOMY
The manufacturing sector accounted for 8.8% of total UK economic output (GVA) and 8.1% of employment (ONS, Q3 2024). The UK is currently the 12th largest manufacturing nation in the world and the sector directly contributed £217 billion in output to the UK economy in 2023, providing 2.6 million jobs (Make UK).
However, the sector’s impact on the UK economy extends far beyond its direct contribution. According to estimates from Oxford Economics, the total impact of UK manufacturing on GDP was £518 billion in 2022, which is nearly a quarter (23%) of UK GDP. A key driver of this total is the reliance of UK manufacturers on a complex network of UK-based supply chains. The manufacturing sector also accounts for 34.5% of all UK goods and services exports.
Indeed, this is reflected in recent trends in occupier market activity, with firms specialising in the manufacture of intermediate products (such as metals, rubbers, and plastics) to be used in the manufacture of other final goods, and component goods manufacturers playing a significant role in take-up of space. UK-based manufacturing also results in demand for downstream services for the distribution and export of goods, thus positively impacting demand for distribution facilities.
Capital-intensive industries such as manufacturing engage in significant business investment activities. In 2022, business investment made by the manufacturing sector amounted to 15% of total business investment. Given that manufacturing accounts for a significantly smaller share of the economy (8.8% based on the most recent figures), this means that the manufacturing sector is considerably more capital-intensive than average. Manufacturing also invests heavily in new technologies, with nearly half (47%) of total research and development (R&D) investment in he UK in 2022 accounted for by manufacturers (Oxford Economics).
High levels of investment in R&D have implications for the facilities that manufacturers operate from and influence choices in terms of the specifications and customisation of these facilities. These investments also shape location choices, especially where R&D is co-located with production.
"High levels of investment in R&D have implications for the facilities that manufacturers operate from and influence choices in terms of the specifications and customisation of these facilities. It also influences their location choices, particularly where manufacturing R&D is co-located with production."
THE SHIFTING UK MANUFACTURING LANDSCAPE
Twenty years ago, the UK manufacturing landscape looked quite different to today. One constant is the dominance of food product manufacturing, which has remained the largest manufacturing sub-division. Over the past ten years, the food and beverage sectors have expanded. The sectors (together with tobacco) accounted for 18% of manufacturing sales in 2013, compared with 26% in 2023. Food products, in particular, have seen strong growth, with growth in prepared meals and dishes being a key component in this growth. There has also been strong growth recorded in the beverage sector.
The UK’s motor vehicle manufacturing sector has recorded peaks and troughs throughout its history. Following contraction during the 1980s and 90s, the sector has seen a change in fortunes since the millennium. In the past twenty years, the manufacturing of motor vehicles has been the largest contributor to growth in manufacturing output in the UK, with output for the sector almost doubling.
However, despite the sector’s rising output value (GVA), in terms of car production numbers, the trajectory has been one of decline, and in 2023, the UK failed to make the top ten list of leading car producers worldwide. The sector has faced several challenges in recent years due to the changing trade environment post Brexit, as well as supply chain issues and inflationary pressures since the Covid pandemic. More than 70% of cars made in the UK are exported, with the EU and US being the two largest export markets. This means that the fortunes of the sector are closely tied to the global trade environment and, in particular, trade relations with the EU.
Basic pharmaceutical manufacturing has also recorded strong growth in the past twenty years, with a 30% growth in output (GVA). Sales from the manufacture of basic pharmaceutical products in the United Kingdom (UK) totalled £1.86 billion in 2023, compared with £777 million ten years ago. The UK has productive life sciences manufacturing clusters across the UK, and the sector has been an important driver for regional economic development. However, the sector has faced challenges, including capacity constraints, with the loss of 10,900 jobs in the past twenty years. In the past few years, the UK has also seen the global proportion of capital investment fall dramatically. Since 2010, the UK has fallen from 4th to 98th place in overall trade balance in pharmaceuticals due to fierce global competition. Many countries, including Ireland, France, and Germany, are also focused on growth in this sector (Source: ABPI).
The manufacture of fabricated metal products (except machinery and equipment), has expanded in the past ten years, with a 40% rise in sales. This growth has been driven by various end uses, with the construction industry seemingly a key driver in demand, with robust growth in sales of metal structures and parts of structures, doors and windows and central heating radiators and boilers. However, another key component in the growth of this sector is the manufacture of weapons and ammunition, which has seen sales rise 70% over the last ten years.
"In the past twenty years, the manufacturing of motor vehicles has been the largest contributor to growth in manufacturing output in the UK, with GVA for the sector almost doubling."
The manufacture of computer, electronic and optical equipment has also seen rapid growth in the past twenty years, with a 152% rise in GVA since 2003. This sector covers three main sub-sectors: office equipment and computers, audio, video and telecom equipment, and medical, optical and precision instruments. In the past ten years, sales in navigational equipment, in particular, have recorded strong growth, as have sales of irradiation and electromedical and electrotherapeutic equipment. The sector is highly competitive globally and features a strong emphasis on R&D.
Sectors that have seen decline in the past twenty years include the manufacture of basic metals, with a 45% fall in GVA since 2003, the manufacture of electrical equipment, with a 34% decline and other non metallic products (-25%).
In percentage terms, the largest decline has been in the manufacture of tobacco. The sector has witnessed a dramatic decline over the past thirty years and the last tobacco factory in the UK closed in 2016.
REGIONAL DIVISIONS
The changing manufacturing landscape across the regions reflects these shifts in sectors, as well as government policy. The region with the strongest growth in the past ten years (in terms of output) is the North East, with output rising 19.2% in real terms since 2013. This is followed by Yorkshire and the Humber and the South West regions, with output from both growing 15.4% over the same period, closely followed by the North West, with 15.0% growth recorded.
Northern Ireland and Wales were the two regions to record a contraction in manufacturing output over the past ten years. However, both regions are expected to see strong growth in the next ten years.
How important is location?
For B2C distribution, location is business critical. Fast and effective distribution to the customer requires an efficient distribution network with strategically positioned warehouse facilities. However, as we move upstream in the supply chain, location – relative to the customer – becomes less critical. Manufacturing firms are, therefore, seen as more footloose than distribution firms, often opting for locations considered less prime from a transport accessibility or consumer catchment perspective.
Heavy manufacturing operations often require a large footprint. They will, therefore, opt for locations where large facilities can be obtained relatively cheaply. However, they will still require staff, and the availability of labour is a key location decision. Locations that have land and labour in plentiful supply, are often keen to attract firms, and with higher-than average wages, the manufacturing sector can be an attractive prospect. Tax incentives have been used as a tool to attract firms to specific locations through initiatives such as Enterprise Zones, Freeports, and Investment Zones.
LOCATION AND EDUCATION
Requirements for specialised skillsets can influence location decisions. Established industries typically locate in clusters to benefit from agglomeration effects, including access to a local workforce who have developed the necessary knowledge and skills. This can be seen in industry clusters such as the Automotive cluster in the West Midlands. The need for specialist skills has led to both private and public sector-led initiatives in apprenticeship and training programs, such as Jaguar Land Rover’s JLR Academy. These academies can enable employers to customise training and education programmes for prospective staff and maintain their existing employee skill base.
Nascent manufacturing sectors tend to be concentrated in high value production and rely on a highly educated workforce. Businesses often establish partnerships or collaborate with universities that have highly regarded engineering schools and offer highly regarded and specialist courses.
The research infrastructure and strong research credentials of universities can act as a magnet for both talent/students as well as industry.
"Heavy manufacturing operations often require a large footprint. They will, therefore, opt for locations where large facilities can be obtained relatively cheaply. They will, however, require staff, and the availability of labour is a key location decision."
CO-LOCATION OF R&D AND MANUFACTURING
Research and development functions will be particularly important for businesses focused on high value manufacturing. Bringing together R&D and manufacturing will not always work due to the different requirements – in terms of operational costs and labour needs. However, there can be advantages for high-value manufacturing. Co-locating research and development (R&D) with manufacturing operations can promote innovation and accelerate product development.
An example of this integrated approach includes the Materials Innovation Factory (MIF) based in Liverpool. The MIF is an £81 million state-of-the-art facility located at the University of Liverpool campus, founded as a strategic partnership between the University, Unilever and UK Research and Innovation (UKRI) as an international centre for advanced materials excellence and expertise.
