Economic value of manufacturing ‘significantly underestimated,’ report claims

The economic value of manufacturing to the UK is being underestimated by as much as half in official statistics which is causing significant issues for policymakers, according to a new report from the University of Cambridge.

The manufacturing sector plays a significant role in the UK economy and according to official statistics provides over 2.7 million jobs, makes up 49% of UK exports, and contributes 66% of all UK R&D business expenditure.

However, manufacturing’s contribution to the UK economy – about 9% of GDP – appears to be dwarfed by services, which make up 70% of UK GDP.

But according to the report, this is misleading.

It says manufacturing may be ‘significantly’ higher in economic contribution and underestimating it could have serious implications for national decision-making.

The report, ‘Inside the Black Box of Manufacturing’ by Dr Jostein Hauge and Dr Eoin O’Sullivan from Cambridge’s Institute for Manufacturing, was carried out for the Department for Business, Energy and Industrial Strategy (BEIS) with its authors saying that the current value placed on manufacturing activity is based on outdated and inaccurate methods of counting.

The report discusses how manufacturing is defined, and what activities are currently included or excluded from how it is counted in the economy, highlighting why its value is being underestimated.

A range of manufacturing-related services are currently excluded from the manufacturing category, it says. These are mostly technical services that require sector-specific technical knowhow, like R&D, industrial design, analysis, and testing.

Additionally, there are professional service providers in areas such as intellectual property and consultancy that are increasingly tailoring their needs to specific manufacturing industries.

Dr O’Sullivan said: ‘It is essential that policymakers have accurate information on the size of manufacturing sectors in order to develop internationally competitive industrial strategy,

‘In particular, policymakers need to be able to measure manufacturing in a way that better reflects how firms actually organise themselves into value networks.’

Seamus Nevin, chief economist at Make UK added: ‘This report is a clarion call for politicians of all parties to update their understanding and recognise the central importance of manufacturing not only to local regions but to the wider UK economy as well.’

‘An increasingly outdated understanding of what modern manufacturing actually is means policymakers have neglected the sector in the misguided belief that services, not manufacturing, is where the future potential for innovation and productivity growth lies.’

Read the report here.

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