UK MANUFACTURING – GOOD BUT STILL ROOM FOR CONSIDERABLE IMPROVEMENT
By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.
01 Jul 14. Confirmation within an independent based survey published yesterday that UK manufacturing sector activity strengthened in the seven months to June may not have come as a particular surprise but it is nonetheless welcome. The Markit/CIPS purchasing Managers Index survey which media tells us is a ‘constantly watched figure’ emerged at a 57.5 level in June compared to 57.0 in May. Clearly this should be taken as further indication that the economy is continuing to move in the right direction but despite this there remain issues of potential concern.
Top within my list of concerns is that despite considerable effort and encouragement on the part of government manufacturing exports are still failing to grow at a proportionately acceptable level. Secondly, and please forgive for repeating this point once again, we are in the UK still importing far too much of what we consume. Thirdly, we should not ignore that the pound sterling continues to rise against most currencies. For example, note that in early morning trade today sterling stood at $1.7146, a figure that represents a six year high. Fourthly, as if to confirm my primary concern, note that the seasonally adjusted trade deficit in goods for April, the latest figures available, was £8.9bn compared to £8.2bn in March, a figure that was roughly double what it had been in the same period of 2012. Finally, I remain concerned on skills and skills retention. This is a large and very important issue and not one that I will attempt to cover in this particular commentary.
We are told by Markit that a reading above 50 indicates that the manufacturing sector is expanding. UK manufacturing, in the manner that most people judge it, is certainly growing and I suspect that the actuality of this has played a part in recently confirmed official estimates that the economy grew 0.8% in the first quarter of the year. This is all very good but conversely I may also consider that there are unfortunate straws in the wind of the positive argument that should not be ignored.
The first is that while sectors such as aerospace, defence, chemicals, pharmaceuticals and specialist engineering all play a large and very positive part in manufacturing sector momentum so too does the automotive sector which in this country, Jaguar Land Rover, BMW Mini plus a handful of smaller specialist car manufacturers apart, might better be regarded as being primarily assembly as opposed to manufacturing operations. I am well aware that the automotive sector employs many thousands of jobs and also that it is hugely important in terms of employment, through exports an overall benefit to the balance of payment deficit argument and to the economy through taxation derived. There is also a skills argument too.
Without doubt the automotive sector is vitally important to the economy and long may that be so. But although I have harped on about this before, please let me remind once again that the vast majority of car manufactured in the UK such as those by Toyota, Honda, Nissan and Vauxhall are merely assembled over here from imported parts. True, perhaps as much as 80% of overall UK car production is then exported and here I must also point out that although they no longer produce cars in the UK, Ford continues to manufacture vast numbers of engines at Dagenham and elsewhere that are then exported to its European plants.
I mention the above not as a criticism but rather to point out that cars that are assembled here are included in the various index as if they have been fully manufactured here. The pity is that we no longer have a decent supply chain and that even if we wanted to manufacture as opposed to assemble all the cars that we produce we could no longer do it. While there is a measure of economic value added in what the car assembly operations do and that, tog