The ‘March of the Makers’, which spluttered to a halt late last year, has now gone into reverse gear, with the latest official data showing UK industry sliding into its third recession in the last decade.
The Office for National Statistics stated that industrial production (comprising manufacturing, mining and quarrying, North Sea oil and gas, water supply and gas/electricity supply) is now 10% lower than when the UK entered recession in 2008. So much for rebalancing the economy.
Manufacturing, which accounts for 70% of industrial production, has been hit hard by the steel crisis – as the Midlands Steel Task Group last year warned could happen.
Manufacturing output in March this year was almost 2% lower than a year earlier, with the manufacturing of basic metals and metal production falling by 4% over the last year, leading to the biggest drop in industrial production for three years.
The quarterly ONS output figures delivered another dollop of grim news after news a week after the Markit/CIPS manufacturing purchasing managers index (‘manufacturing PMI’) – a forward looking measure of confidence - fell in April to 49.2 from a figure of 50.7 in March, thereby also indicating that the sector was in its worst shape in three years.
A Markit spokesperson stated that “on this evidence manufacturing production is now falling at a quarterly pace of 1% and will likely act as a drag on the economy during the second quarter”, noting that the sector had seen almost 20,000 manufacturing job losses over the past three months.
I should add that this reflects a national trend, and the picture in the West Midlands seems somewhat more positive on the basis of evidence presented by the Midlands Economic Forum in its recent ‘Midlands Perspectives’ piece (see here ).
Nevertheless, a mix of forces now seem to be coming together to squeeze UK manufacturing: adverse global conditions such as a slowdown in emerging markets; a slowdown in the domestic economy; and uncertainty over the outcome of the EU referendum.
David Kern, chief economist at the British Chambers of Commerce, was reported as saying this week that “a healthy manufacturing base remains critical to the wellbeing of the UK economy in key areas such as innovation, exports and productivity, making it vital that the sector is given more support to compete against global and domestic headwinds.”
He’s absolutely right. Sadly the libertarian Business Secretary Sajid Javid seems pretty uninterested in offering more support, having been caught napping during the unfolding steel crisis. He can’t even bring himself to utter the words ‘industrial policy’.
And since coming into office last year he has given the impression of being busy by scrapping some of the key planks of the modest but useful industrial policy started by Lord Mandelson and developed by Vince Cable (think of the scrapping of both the Manufacturing Advisory Service and the Advanced Manufacturing Supply Chain Initiative).
Markit/CIPS suggested that the slowdown in the oil and gas industry had again hit production but I’m sceptical of this, as oil prices have been low for some time; the damage has in large part already been done in terms of machinery and equipment orders being cancelled by North Sea operators, for example. The flip side of that, though, is that lead times in some manufacturing sectors are quite long, which suggests that the situation is perhaps even worse than the recent Manufacturing PMI figures suggest.
Of course, some manufacturing sectors are still motoring ahead, cars and aerospace being two examples, which in part explains why Midlands Manufacturing is still humming.
Now, some analysts hope that manufacturing will pick up later this year as the recent depreciation in sterling will boost exports and global growth picks up. That depends on global growth, of course. And a ‘Remain’ vote in the European referendum might anyway see a sterling ‘bounce’ which could reverse the recent decline in sterling.
A final point. With the sad demise of MAS, more responsibility falls on the shoulders of UKTI to help small firms – including in manufacturing - and point them towards available support not only on exports and investment but in accessing support on innovation and skills.
Sadly, UKTI itself seem to be in a fight to survive given the scale of cuts currently being considered at the Department of Business, Innovation and Skills. But if ‘rebalancing’ the economy towards making and exporting things is to mean anything more than hollow rhetoric then we should be looking at investing further in UKTI and not making cuts to it.
* Professor David Bailey works at the Aston Business School in Birmingham