South: Manufacturing risks lagging behind competitor economies in spite of 64% productivity growth, says EEF

The Government is currently grappling with Britain’s productivity puzzle. A new report dated February 24 from EEF, the manufacturers’ organisation, and from leading technology company Infor, reveals that UK manufacturing has a strong story to tell, with a healthy 64% of manufacturers achieving productivity growth in the past two years. 57% expect further improvements over the next two years. But the sector still risks lagging behind competitor economies. 

The report, Productivity: the state of the manufacturing nation, reveals that growth in manufacturing productivity outpaced that of the service sector and the UK economy as a whole in the two decades to 2014. This suggests that manufacturing is not the source of the UK’s weak performance, and creates a strong argument in favour of rebalancing the economy.

Over a quarter of firms (26%) say that increasing domestic demand has had a positive impact on productivity. Other drivers of productivity are believed to be the opening of new sales channels (23%), lean initiatives (23%), investment in research and development (22%), new IT and technology (22%) and skills training (22%).

Manufacturers are reaping the rewards of making supply-chain improvements (33%), and of investing in plant and machinery (31%).

At the same time, productivity growth is not without its challenges. There are still concerns about UK manufacturing lagging behind its global peers. Despite outpacing other sectors in the UK, almost half of manufacturers (49%) agree that UK manufacturing productivity lags behind that of competitor nations, particularly as it is increasingly competing on a global stage.

Over a quarter of manufacturers (27%) say they are being held back by uncertainty about the business outlook, while 22% are battling against a shortage of skills. Just two in 10 firms (20%) say there are no barriers to increasing productivity.

There is also a danger that official data tell only part of the productivity story. Fewer than half of firms (48%) say that output per hour is an adequate indicator of productivity.

There is mounting recognition that new technology and the advent of Industry 4.0 could result in a step change in productivity. Over three quarters of manufacturers (77%) say that UK manufacturers should be more proactive in adopting major new advances in technology to boost productivity. It is a good sign that more than six in 10 firms (62%) already plan to invest more in Internet-connected capital equipment in the next five years.

Manufacturing has the potential to be a major driving force behind improving the UK’s productivity performance, but it must also tackle its concerns. The report makes the case for a comprehensive, long-term industrial strategy and says that government and business must start talking the same language and collaborating more to ensure that policies encourage productivity and growth.

Jim Davison, south of England region director at EEF, said: “While the UK economy as a whole has an issue with productivity, this report suggests that manufacturing is not the problem child. In the past two decades UK manufacturing has outpaced the rest of the economy for productivity growth, and more than six in 10 manufacturers have grown their productivity in the past two years. This is the strongest indication yet that a more balanced UK economy could also be a more productive economy.”

Lisa Pope, senior vice-president at Infor, said: “This report suggests that manufacturing holds the key to unlocking the UK’s productivity puzzle. Technology will play a vital role. But there is also a big strategic role here for government in ensuring that the right policy framework is in place to support manufacturing productivity and the sector’s successful transition to Industry 4.0.” 

The report can be downloaded here: https://www.eef.org.uk/resources-and-knowledge/research-and-intelligence/industry-reports/productivity-the-state-of-the-manufacturing-nation.