
Manufacturing will be an economic and emotional totem for British business this year. Backed by George Osborne's call for a "march of the makers", Britain's producers have become a symbol of the new economy that a post-crunch nation is striving for.
The drive to rebalance the economy – three-quarters of Britain's GDP is dependent on services such as advertising and retail – has widespread support. Hence the dismay when Britain's remaining train factory, the Bombardier plant in Derby, was beaten by a German rival for a £1.4bn government order last year.
There is also cold logic behind the drive for a renewed manufacturing boom, untempered by nostalgia for the early 1990s when manufacturing accounted for more than 20% of GDP compared with 10% now. The governor of the Bank of England, Sir Mervyn King, has warned of "imbalances" in the global economy, driven by low domestic demand from big exporters such as Germany and China, who funnel their excess goods into indebted countries such as Britain and Spain. A simplification of course, but the point is that Britain needs to export more and import less, because countries that spend too much tend to manufacture too little. It is one of the less painful ways of reducing the deficit.
But political and public backing alone will not guarantee a strong performance. As with the rest of the economy, manufacturing is critically dependent on the eurozone pulling back from the abyss. About half of British exports are manufactured goods, from cars to aircraft engines, with nearly half of those to the European Union.
Lee Hopley, chief economist at the manufacturers' organisation, the EEF, says the momentum generated by a strong 2010 and a good start to 2011 was checked by an uncertain outlook. Companies who make automotive, mechanical and aerospace products are performing well, says Hopley, but the metals, defence and construction sectors are struggling. "It is not like early in 2011 when all sectors and all markets were doing well in Europe. That's certainly not the case now,"
She adds: "If you take the big uncertainty out of the equation, which is Europe, we see companies having enough confidence to increase investments and go after new markets. If Europe does not sort out its problems we are looking at a much more uncertain and gloomier outlook."
Rosy outlook
Darchem Engineering, a maker of specialist insulation that straddles the private and government sectors, is "optimistic but cautious" this year, according to its UK managing director Graham Payne says the civil aerospace part of the business, which supplies insulation for fuel and air ducts in aircraft, is enjoying "strong" demand. There is a link here with the rosy outlook for Rolls-Royce, one of the world's largest aircraft engine makers, and aerospace firm Airbus, which opened a new factory for building A350 wings in Wales last year.
Payne says "headwinds" have been felt in defence and nuclear, sectors with strong links to public spending. "I am seeing early signs of the European government financial situation starting to impact on markets, especially nuclear and defence." For instance, BAE Systems, Britain's largest industrial employer, announced plans to cut nearly 3,000 aircraft manufacturing jobs in September following the government's defence spending review. Nonetheless, Darchem expects turnover to rise by about 10% this year to between £70m and £75m.
One manufacturing sector guaranteed to have a strong year is automotives, Britain's biggest export market. The Society of Motor Manufacturers and Traders says 1.5m cars will be built in Britain this year, up from 1.4m in 2011. This is good news for exports because eight out of ten of those vehicles will be sold abroad. Paul Everitt, SMMT chief executive, says he expects production to increase, even against the backdrop of a faltering eurozone. "China, the Middle East and even the US are looking OK. We are quietly confident that next year will see further growth."
Such Optimism is underpinned by investment announcements by major UK-based car producers last year. BMW said the new Mini would be built in Oxford; Jaguar Land Rover announced plans for 1,750 new jobs; and Toyota said it would create 1,500 jobs by increasing production at its Derby plant. Everitt said: the automotive sector now has a "good picture" for the next three to five years. "We have had £4bn of investment committed to the UK in a year. I don't think there was one major manufacturer that did not make a major statement about its intentions." If only the eurozone could provide such certainty.
