"Urgent" action needed on productivity, say manufacturers

Research shows that UK productivity growth has flatlined. The manufacturers' association, EEF, outlines recommendations to reverse the worrying trend.

Image illustrating an article about EEF research that shows that UK manufacturing has flatlined
The UK government needs to embark on "urgent" action to tackle the productivity problem bedevilling much of the nation's manufacturing sector, according to a report on Tuesday.The report from the manufacturers' organisation EEF said the government should create an Industrial Strategy Council immediately with the priority of setting clear goals focusing on solutions to boost manufacturing productivity growth.Research by EEF showed manufacturing productivity growth in the UK increased at an annual rate of 4.7 per cent between 2000-2007 but had "flat lined" at less than one per cent a year since."Prior to the 2008 financial crisis all sectors of manufacturing contributed to productivity growth, however since then, there has been significant divergence across sectors," said EEF.The survey found that, since 1995, transport equipment and chemicals growth outperformed internationally and that this trend had continued after the financial crisis. Pharmaceuticals growth, on the other hand, ran in line with international growth until 2008 but went sharply into reverse after that.Lee Hopley, EEF chief economist at EEF, said: “We’ve known about the productivity problem for some time with various attempts made to try and fix it across the whole economy."Productivity growth matters for wages and international competitiveness yet ten years on from the start of the financial crisis these attempts have not delivered a major shift and we need to tackle the challenge in a different way.“Manufacturing offers a good area to get gains on productivity growth. The Industrial Strategy Council should now be created urgently and put to task to identify how the overall strategy can improve productivity in those industrial sectors where it has lagged.”
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According to the report, 'Unpacking the Puzzle', no single factor could completely explain the productivity performance of all manufacturing sub-sectors. Calling for a targeted solution,  EEF’s said its initial assessment of what was needed had identified the following:
  • Size matters, with larger companies being able to exploit economies of scale, vertical integration opportunities and with it, higher levels of productivity. EEF's analysis shows sectors with a higher share of larger firms tend to outperform internationally.
  • Boosting capital investment is not a silver bullet solution, for some sectors significantly investing more may not bear fruit. As an example, despite Italy having higher levels of investment in capital equipment compared to Germany, productivity levels in Italy are weaker.
  • More UK manufacturing sectors undertake ancillary services as part of business operations compared to international counterparts. This suggests UK manufacturers are more likely to be at the end of value chains where the opportunities for productivity growth may be lower, but profits higher.
  • Management practices across UK manufacturing do not reflect international best practice with a long-tail of companies with poor management practices. Evidence suggests companies with better management capabilities are more likely to have higher rates of productivity growth.

A Business Department spokesman said: "Britain has a proud manufacturing heritage and through our modern Industrial Strategy we are committed to growing our productivity and improving people's earning power."Our plans for the Made Smarter Commission, a joint government-industry body responsible for driving up manufacturing productivity, will be revealed in the coming weeks."We will also shortly set out details of the independent experts on the Industrial Strategy Council that will hold us to account delivering our ambitions."Publication of the survey coincided with a report from business advisers BDO indicating that, despite a fall in manufacturing and services output in March, companies remained optimistic about their financial prospects on the back of strengthening household incomes.Peter Hemington, a partner at BDO, said: "The optimism of both the manufacturing and services sectors is encouraging for the health of the UK economy in the face of underwhelming business output."Weathering a string of shocks to the UK economy, which include a slowing eurozone and continued geopolitical uncertainty, comes down to good management from business leaders."Expectations for a Bank of England interest rate rise this month now look increasingly remote, but well-managed businesses will still be looking for ways to insulate themselves against further shocks."For related news and features, visit our Enterprise section. Find out more about our upcoming Relocate AwardsRelocate’s new Global Mobility Toolkit provides free information, practical advice and support for HR, global mobility managers and global teams operating overseas.Global Mobility Toolkit download factsheets resource centreAccess hundreds of global services and suppliers in our Online DirectoryClick to get to the Relocate Global Online Directory