UK: MANUFACTURING - Putting the UK in context.

UK: MANUFACTURING - Putting the UK in context. - Management Today's first manufacturing performance index, which will appear on a quarterly basis, comes at a critical - and paradoxical - time for UK industry. Those forecasters who in the '80s were predic

Last Updated: 31 Aug 2010

Management Today's first manufacturing performance index, which will appear on a quarterly basis, comes at a critical - and paradoxical - time for UK industry. Those forecasters who in the '80s were predicting the demise of manufacturing in favour of services are now forced to eat humble pie.

The service sector is flat on its back; yet judging by the anguished cries of many senior industrialists, so too is manufacturing. However, unlike the builders or retailers, the recent results from some of the UK's top engineering companies, make impressive reading. GKN, BTR and Weir are good examples.

It is this very paradox that has prompted us to start the index. Barely a news bulletin passes without a reference to the economy. Are we heading for a double dip recession? Are we bumping along the bottom, or are recovery's green shoots sprouting? The index, by analysing six key indicators should help to provide the answers and put Britain's position in a European context.

The European dimension is also important now with the turmoil over the Maastricht treaty and the exchange rate mechanism coming just as Britain has assumed the Commission presidency and John Major's government begins a record-breaking fourth term of Tory rule.

So what does our first index tell us? Looking at the four countries, it is clear that the UK has fallen by some 15% since January 1989, and the fall has been particularly marked since mid-1990. Real recovery seems as elusive as ever.A brief spurt early in 1992 raised hopes but the lift-off has not really been sustained.

By contrast, the French and Italians broadly maintained their performance through 1989 and half-way into 1990 before recession took its toll in the second half of 1990 when performance fell by between 6-7% for both France and Italy. There was no change in 1991, despite apparent erratic leaps in performance - followed by equally swift falls. The trend line for both shows little sign of recovery in 1992.

Germany, Europe's usual powerhouse, steamed ahead in 1989 and 1990, buoyed by re-unification and the benefits flowing from an initial spending spree by the former Ossis. But as the cost of unification mounted, the Bundesbank raised interest rates sharply to contain the burgeoning money supply and the hated spectre of inflation. As a result, its performance in our index fell by 3-4% in 1991, with little evidence of recovery in 1992. Yet it is a sobering thought for British industrialists, that even with one hand tied behind its back, Germany can still perform 20% better than the UK since 1989. What sort of competition will we face in the next millennium when the former East Germany has been transformed to West German levels, creating a super-state?

How the Index works: the six factors by which each country's manufacturing performance is measured are: - GDP in manufacturing, excluding oil and construction - Productivity - Levels of finished stock - Current order books - Capacity utilisation - Change in producer prices.We have assumed the standing of each country in January 1989 to be identical to show relative performance over the latest three-year cycle. All statistics are taken from the EC Commission database to ensure strict comparability.

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