• Hann-Ju Ho 

    Manufacturing Sector Insight

    Author: Hann-Ju Ho, Senior Economist

    Publication date: 01.08.2010

     

    Manufacturing
    In the years leading up to the credit crisis an overvalued pound and a strong financial services sector meant that industrial  production actually subtracted from the UK’s overall GDP growth, which contributed to the widening of the trade deficit. The good news is that this is all set to change.

     

    A strong rebound in global growth, plus a sustained fall in the pound of about 20% on a trade-weighted basis, will provide strong support to the manufacturing sector in the coming years, meaning that industrial production (along with business services) is likely to make a significant contribution to overall GDP growth (see chart).

     

     Manufacturing chart 

     

     Encouragingly, official statistics show that:
    • Manufacturing output was up 4.9% in the year to July, the strongest pace of growth for more than 15 years.
    • Engineering and basic metals and metal products recorded strong annual growth of 8.2% and 12.4% respectively, while food & drink also registered a decent rate of growth.

     

    Good news for exporters 

    Hi-tech sectors such as pharmaceuticals and aerospace have not registered such strong growth in the past 12 months, but they did perform well during the recession. However, because the pharmaceutical, aerospace and engineering sectors usually invest strongly in R&D, they’re more likely to benefit from higher levels of innovation and growth than other sectors. This bodes well for exporters in the hi-tech arena, as high export ratios mean they can reap the benefits of the 20% fall in trade-weighted sterling since early 2008, while making the most of the rebound in global demand.

     

    But it’s not just the hi-tech sectors that are showing signs of growth. Within consumer and intermediate goods, for example, an important part of the UK’s manufacturing base, food & drink proved to be more resilient to the economic downturn than manufacturing as a whole, with output in the past year up by more than 4%.

     

     In addition, some exporters — if their products were priced in the currency of the market they were exporting to — may have benefited from the sterling depreciation through an improvement in their margins rather than market share. About two-thirds of UK exporters are estimated to price in foreign currencies, so they will also be able to make the most of hedging opportunities.

     

    Source: This article was first published in Lloyds Banking Group - Perspective Magazine, Edition 2.

2/23/2018 6:22:31 AM