The future of UK manufacturing
Growth in UK manufacturing output is expected to accelerate over the next ten years…
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Growth in UK manufacturing output is expected to accelerate over the next ten years. Oxford Economics forecasts the sector to expand 12.0% by 2033, which represents a change in gear for the sector when compared with growth of 8.6% over the past ten years.
The sectors with the strongest growth prospects are the manufacturing of other transport equipment, computer electronic and optical equipment, and the manufacture of basic pharmaceuticals. All are expected to see output rise by 20% or more over the coming decade.
The manufacture of ‘other transport equipment’ division includes transportation equipment such as shipbuilding and boat manufacturing, railroad rolling stock and locomotives, air and spacecraft, and their parts. Growth in this sector has been robust in the past ten years, and strong growth is expected in the next ten years. There are several reasons for the robust growth forecast in this sector, including rising defence spending and increased demand from the commercial aviation sector.
The manufacture of computer electronic and optical comprises the manufacture of computers, computer peripherals, communications equipment, and similar electronic products. It includes the manufacture of semiconductors and other components for electronic applications. These technologies have numerous and varied end uses, including consumer electronics, communications equipment, scientific, laboratory and medical equipment, navigation and aviation equipment, and various defence applications. Increased demand from defence and aviation sectors, along with growth in the scientific, laboratory and medical R&D sectors, are key drivers for growth in this sub-sector.
The manufacture of basic pharmaceuticals is another sector expecting strong growth (+20%) in the next ten years. This sector includes the manufacture of medicaments, vaccines, medical diagnostic preparations and biotech pharmaceuticals. However, it excludes research and development for pharmaceuticals and biotech pharmaceuticals. This sector experienced strong growth in 2020, during the outbreak of the Covid pandemic, with output rising from £13.8 billion (in 2019) to £16.5 billion, followed by another increase in 2021 to £17.3 billion. Robust growth is expected to continue, as the pandemic highlighted the sector's critical nature and the need for secure, domestic capabilities for research, development and production of vaccines, medicines, and other medical supplies.
However, not all sectors are expected to expand. The largest contractions (in percentage terms) are forecast for the manufacture of textiles and wearing apparel.
REGIONAL GROWTH PROSPECTS
Of course, regional prospects for manufacturing are heavily influenced by the composition of manufacturing within these regions and the varying outlooks for different sub-sectors.
The strongest growth (in percentage terms) is expected for Northern Ireland. However, the anticipated growth will still fall short of offsetting the negative growth recorded over the past ten years. Northern Ireland also has the smallest manufacturing output of any of the UK regions, and in absolute terms, the growth expected here falls short of all other regions, except of London.
The South West is also forecast to see strong growth in manufacturing, with 14.3% growth by 2033. This builds upon the strong historic growth enjoyed by the region since 2013. The South East region also anticipates robust growth in manufacturing over the next decade.
Scotland, the East of England and Wales, have recorded weak or negative growth in the last ten years, but this trend is expected to reverse, with robust growth forecasts for the coming decade.
SECTOR AND REGIONAL GROWTH HOTSPOTS
The North West region features prominently in the list of growth hotspots, with multiple sectors in the region expected to expand significantly. These include other transport equipment, basic pharmaceuticals, and motor vehicles, highlighting the region’s diverse manufacturing base across several high-growth sectors.
The West Midlands appears three times in the list, with strong growth prospects across several well established, traditional manufacturing sectors, including motor vehicles, fabricated metals and machinery and equipment. The East region also appears three times, with strong growth forecasts for pharmaceuticals, computer, electronic and optical equipment and machinery & equipment manufacturing.
The South West region appears twice within the top ten, with hotspots of growth in high value sectors; other transportation equipment and the computer, electronic and optical sector division.
Yorkshire & Humber appears twice within the top twenty list with growth in the food manufacturing sector as well as in fabricated metals manufacturing.
Northern Ireland, Wales, the North East and London regions don't have any growth sectors within the top 20 hotspots list. The hotspots are based on absolute growth rather than percentage growth and their absence reflects smaller industrial bases compared with other regions.
TOP GROWTH SECTORS AND REGIONAL PROSPECTS
The top three growth sectors within manufacturing are other transport equipment, computer electronic and optical, and the manufacture of basic pharmaceuticals. The regions expected to benefit most from the expansion of these growth sectors are the North West, South East and South West.
The South West region is expected to be the main beneficiary of the growth in Other transport equipment manufacturing. This is followed by the North West and East Midlands regions.
Growth in the Computer, electronic & optical sub-sector will impact the South East region most, with output expected to increase by almost £1 billion in this region by 2033. The South West is another region that is expected to benefit from growth in this sector, as is the East of England region.
The North West region will drive expansion in the basic pharmaceuticals manufacturing sector, with regional output increasing £709 million by 2033. There is also robust growth anticipated in the East of England, the South East, as well as Scotland and the North East.
AEROSPACE AND DEFENCE MANUFACTURING
The United Kingdom’s defence manufacturing sector is a pivotal component of both national security and economic prosperity. It encompasses a wide array of industries, including aerospace, naval shipbuilding, and advanced weaponry systems. The sector not only equips the nation’s armed forces but also significantly contributes to the economy through exports and job creation.
In the forecasts for output (GVA), the expansion of the aerospace and defence manufacturing sector is evident within the ‘other transport equipment’ manufacturing division, which includes the manufacture of air and spacecraft and their parts, as well as in the ‘computer, electronic and optical products’ division. These two manufacturing divisions both have strong growth prospects over the next ten years, and along with pharmaceutical manufacturing, are the top sectors for expansion.
The defence industry is positioned for significant growth. Heightened global tensions and ongoing conflicts have shifted attention toward strengthening defence priorities. Consequently, defence spending is expected to match or surpass inflation, fuelling innovation and advancements in modernisation within the sector.
The Government’s Manifesto stated that it would “bring forward a defence industrial strategy aligning our security and economic priorities”. Ensuring a strong defence sector and resilient supply chains, including steel, across the whole of the UK. Notably, 68% of defence spending with UK industry occurs outside London and the South East. It can, therefore, play a key role in a regional growth strategy.
We have seen the growth, investment and modernisation in the sector driving take up of both new and existing facilities across the UK. For example, in Q4 2024, BAE Systems agreed to take the 96,000 sq ft Unit 5 at PLP’s Bessemer Park in Sheffield for a new artillery and development facility. Earlier in the year, a semiconductor factory in the North East was acquired by the Ministry of Defence. Specialist semiconductors are used in a number of military platforms, including to boost fighter jet capabilities. This acquisition was made to safeguard the future of the facility, which is critical to the defence supply chain and major military programmes and exports.
In the commercial aviation sector, the demand for aircraft continues to outpace production capacity, resulting in a backlog equivalent to 14 years of current production. This compares to an average pre-pandemic backlog of around six years (2013 and 2019). There is also significant growth potential for the industry as demand expands across global markets, particularly in Asia Pacific and Middle East markets as well as in Africa. Furthermore, the emerging space sector also presents substantial opportunities for the aerospace and defence sector.
The UK’s aerospace industry is the second-largest globally, with an annual turnover of around £30 billion. The sector employs a substantial workforce and contributes significantly to exports.
FOOD AND BEVERAGE MANUFACTURING
The manufacturing of food products is the UK’s largest manufacturing sub-sector. It accounts for 12% of total manufacturing output (GVA), or c.£3.4 billion. Beverage manufacturing is worth less, at c.£1.1 billion, but there are strong growth prospects for both sub-sectors over the next ten years.
The region where the expansion of these sectors will drive the most growth is Scotland, with an additional £637 million expected by 2033 across the two sectors combined. This is followed by the South East, the East Midlands and the Yorkshire & Humber regions. In Scotland, growth in beverage manufacturing will be the key driver, which is dominated by the manufacture of Scottish Whiskey.
MOTOR VEHICLE PRODUCTION
The UK’s automotive industry has bee the largest contributor to growth in manufacturing output over the past twenty years, and robust growth is expected over the next decade. Growth in this sector will be focused in the North West and West Midlands regions, both of which have existing automotive manufacturing clusters.
Given the importance of th export market for UK car production, the importance of the global trade environment cannot be overstated, especially the trade relationship with the EU, which remains by far the most important market for UK car makers, accounting for more than half of UK car exports in the first half of 2024. On a regional basis, car manufacturing in the East Midlands and the North East regions are particularly dependent on the EU export market, while for the West Midlands, other (non-EU) export markets are more crucial.
While the outlook for the ten-year horizon is positive, recent performance in the sector has been weak, and there are risks to the outlook. Across the global automotive industry, restructuring is taking place as manufacturers transition from combustion engines to EV (electric vehicle) production, leading to plant closures, including in the UK. In 2024 (January to November), UK car output fell by -12.9%, 108,787 fewer than the same period in 2023 and almost half a million short of 2019 volumes.
UK automotive manufacturing is well placed to benefit from the ongoing shift toward greater adoption of electric vehicles, as recent investment announcements in EV and battery production testify. However, with the EV market not growing as fast as expected and headwinds to the global trade policy environment, there are downside risks to the growth forecasts.
CONCLUSION
Manufacturing output is forecast to grow 12% in the next ten years. This compares with 8.6% growth over the past ten years. Productivity gains in the past ten years (c.9%) have meant that floor space occupied by manufacturers has changed very little. However, expansion of existing sectors, growth of new and emerging sectors and firms seeking to upgrade (or simply relocate) facilities have driven a significant amount of take up in the industrial and logistics sector in recent years. While productivity gains are likely to continue, the accelerating growth, coupled with ongoing shifts in terms of the composition of the sector, will mean new sources of demand with shifting requirements.
Growth in the sector will be driven by advancements in key sectors such as aerospace and defence, pharmaceuticals, and high-tech electronics. Regional manufacturing hotspots, particularly in the North West, South West, and South East, highlight the diverse strengths of the UK manufacturing capabilities, from transport equipment to semiconductors.
The sector will continue to face challenges, including the need to bolster supply chain resilience, adapt to geopolitical shifts, and navigate the evolving global trade environment. A comprehensive, long-term industrial strategy, with a focus on innovation and regional development, will be essential for the UK to sustain growth and capitalise on emerging opportunities in an increasingly competitive global market.
