UK Manufacturing sector growth at two year high

The BBC reported on June 1st that the UK Manufacturing sector growth is at a  two year high. This is very promising news for the UK economy , this is because the UK used to have huge manufacturing power but with the rise of globalisation many other countries across the world such as Japan and China are now the main powers in manufacturing.

The UK has predominantly become a services based economy and this makes up most of the national output (see graph). what can also be seen from this graph is that the manufacturing sector of the UK has slumped massively since the 1970s.

BBC

The graph above tells a massive story of how the UK's economy has transformed from a manufacturing based economy to a services and finance economy. In the 1970's manufacturing accounted for more than 30% of the UK's national output and the services sector only accounted for just over 15%. Fast forward 30 years and the two sectors have flipped as manufacturing only accounts for just over 10% where as services has increased up to nearly 40%.

The UK Manufacturing sector has declined so much in recent years because many of the companies have moved their operations to other countries in pursuit of higher profits from lower production costs. This is because in many other countries the minimum wage is a lot lower so companies can pay their workers less, also premises are a lot cheaper in other countries. Many big companies have moved out of the UK for cheaper production costs elsewhere as they will ensure higher profits in the future for shareholders.

With many companies pulling out of the UK this caused employment in the manufacturing sector to plummet. This is because all of the companies had to lay-off workers before they transferred their operations to countries such as Japan and China. This left many skilled people out of work , this is one of the reasons why there is higher unemployment in the north of England. This is because many of the factories where in the north and after the workers got laid off there was no where they could go.

In order to solve this problems in the manufacturing sector, there needs to be massive investment from the government or easier credit from the banks. This is because the investment will allow more manufacturing companies to grow and employ more people thus lower the unemployment rate. The investment will also help many manufacturing companies to produce more which will equal more exports for the UK. I believe that the increase in investment to this sector will help to grow the entire UK economy and put many people back into work.

The UK's trade deficit now stands at £2.5 Billion this means that the UK is importing much more goods than we are exporting. The UK has also been running a trade deficit for more than 20 years in fact the last trade surplus where the country actually exported more than it imported was in March 1981. The graph below shows the balance of Trade of the UK from 1970 to 2013.

In order to improve the UK Economy the manufacturing sector will need much more investment. It has already started to grow but there is still more work to be done and if there is more investment it will greatly help to improve growth prospects in the future.


Daniel Butler

Sources : Trading Economics , BBC