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Andrew Sissons
Researcher, Big Innovation Centre
T 020 7976 3609
Andrew  Sissons

Putting our eggs in two baskets – manufacturing and business services

Authors: Andrew Sissons Andrew Sissons

10 May 2011

Our new report – Britain’s Quiet Success Story – argues that business services have replaced manufacturing as the lifeblood of the UK economy. The business services sector is twice the size of manufacturing, and the government needs to recognise this. That does not mean, though, that we should ignore manufacturing. The manufacturing industry is vital to the future of the UK economy, and the government should be commended for getting behind it.

In fact, manufacturing and business services have a lot in common. They are both very productive sectors of the economy; they generate a lot of the value that helps to sustain other parts of the economy, like retail and transport. And they are both crucial to the UK’s export performance, which is so important to the re-balancing of the economy. Britain has a huge, structural trade deficit – we have imported more than we’ve exported since 1983. Every year, that trade deficit is leaking billions of pounds out of the UK economy, which is not a sustainable option in the long-term.

In terms of how they contribute to the trade deficit, manufacturing and business services are very different. Manufacturing is a mass export sector – it accounts for over half our exports – but we import far more manufactured goods than we export. By contrast, we have a huge trade surplus in business services – over £20 billion, the largest in the G8 – but we don’t export them on a large enough scale.

Rather than setting manufacturing and business services off against each other, we are calling for the UK to focus on growing both sectors together. These two sectors hold the key to the UK recovery, but neither one can make it happen alone. We need to vastly improve the balance between exports and imports in manufacturing, and to turn business services into a mass export sector.

And there is some very encouraging news on this front. UK Trade and Investments – the government body that promotes UK exports – today published its Corporate Strategy for the next five years. At first sight, it looks excellent, featuring many innovative measures to turn British businesses into world beaters. By targeting high growth SMEs, by creating networks and relationships that connect UK firms with the global economy, by ensuring that all government departments support UK trade, this strategy should benefit Britain’s economy hugely. With this strategy in place, the government must now make sure UKTI has the resources it needs to make it happen.

This is exactly what government should be doing. Rather than pitting manufacturing against financial services, it must recognise the strengths of different parts of the economy, and propel them out across the world.

Comments in Chronological Order (Total 1 Comments)

Chanel Coco Bags

06 Aug 2011 4:42AM

In fact, manufacturing and business services have much in common. They are very productive sectors of the economy, they generate a lot of value, helps to maintain the rest of the economy, such as retail, transportation,. They are the UK's export performance, this is such an important key to rebalancing the economy. Britain has a huge structural trade deficit - we have more imports than we export since 1983. Annual trade deficit is leaking out of the UK economy billions of pounds, this is not a long-term sustainable option.