Why Has The UK Dropped Out The Top 10 Manufacturing Nations?

On the heels of calls for the government to better support the industry, UK manufacturing has faced some hard-to-swallow news.

Analysis released by Make UK found that UK manufacturing output was worth US$259bn in 2022, the latest year that data is available for. 

This has placed the country twelfth in worldwide rankings, making it the first time that the UK has been out of the top 10. 

“This is a major body blow to UK manufacturing,” says Dr Graham Hoare OBE, Chief Executive Officer at the Manufacturing Technology Centre (MTC).

"We are home to some of the most innovative manufacturers and research facilities in the world. We must do everything possible to harness this expertise to reinvent ourselves as a manufacturing superpower.”

This marks a significant shift in the UK’s industrial standing on the global stage, in a time where manufacturing progress is vitally needed.

During the industrial revolution in the late 1800's, manufacturing was the driving catalyst for the UK's economic growth.

However, during the second half of the 20th century it's importance declined with a shift towards services.

Today, having left the European Union, many experts argue manufacturing needs to become that same catalyst again.

The manufacturing sector is responsible for a colossal 44% of all UK exports, contributes to 10% of its GDP and employs 2.6 million people directly, with many more in other industrial supply chains.

There's incredible potential for these numbers to grow, potential which is offset by this recent drop.

A drop which, according to Sophie Oliphant, Vice President, Regional Business Group Leader, Safety & Industrial Business Group at 3M hasn't come from nowhere.

​​​​​​​"While it’s disappointing to see that the UK has dropped to the 12th largest manufacturer globally, it’s not entirely surprising,” she says, expanding on the broader context that may make this outcome puzzling to some. 

“The UK boasts some of the world’s leading universities, top technology researchers and exceptional tech talent. 

"Our country is an outstanding science and engineering hub, characterised by favourable labour conditions and a robust regulatory landscape. So why are we dropping, rather than excelling?” 

This is a question of paramount importance that all UK manufacturers should be asking when they look to enhance operations and expand.

The nation’s drop arguably comes down to five key factors that span influential economic changes to issues surrounding policy and investment. 

1. Brexit 

It’s impossible to discuss the economic and industrial landscape of the UK today without addressing Brexit. This is doubly the case for manufacturing. 

Make UK’s ‘UK Manufacturing Statistics Report’ highlights that EU exports have reduced by nearly £27bn (approx US$34.6bn) since Brexit.

The same is true for imports, which have declined by almost £8bn (approx US$10.2bn).

Brexit has contributed to increased trade barriers, reduced investments, supply chain disruptions and uncertainty surrounding trade agreements, tariffs and regulatory frameworks.

The supply chain vulnerabilities highlighted by the COVID-19 pandemic have not been fully resolved, leaving the sector at risk for future significant disruptions and declining production.

All this has significantly slowed down the sector's productivity and development. 

Here, manufacturing follows a trend of sluggish economic growth observable across post-Brexit UK industry.

While Brexit has caused significant challenges, Sophie sees potential for the UK to succeed due to the government’s trade commitments.  

"The government's commitment to making trade with Europe easier in the aftermath of Brexit is a critical step towards regaining our stature in the global manufacturing arena,” she adds. 

"With increased investment and a strategic approach to bolstering our manufacturing processes, the UK is well-positioned to attract new opportunities and thrive once again, aiming to return to the top 10 of the manufacturing industry's elite."

2. Global competition

Part of the UK's drop from the top ten is down to positive manufacturing growth in other countries.

China, the US, Japan and Germany continue to dominate, accounting for 55% of world manufacturing output while the UK accounts only for 2%. 
Manufacturers in these four nations are ramping up investment in industrial robots, AI, automation and electric vehicles, with strong governmental support and investment.

It was Mexico and Russia that overtook Britain to the seventh and eighth positions on the list. 

Manufacturing exports make up 40% of Mexico's US$1.3tn economy. Thanks to investment from China and a nearshoring boom with the US, this number is set to grow even further. 

The nation's exports may rise from US$455bn today to $609bn in the next five years, driving this higher ranking.

Manufacturing is Russia’s most important sector, accounting for more than 55% of total production and addressing the country's need for automobiles, electric generators and turbines.

The sector has benefitted from increased defence production due to its invasion of Ukraine, now making up 6% of GDP.

3. Technological advancements

The UK has been outpaced by other nations in its adoption of Industry 4.0. 

In countries like the US and China where Industry 4.0 has been quickly adopted, manufacturers are experiencing heightened productivity and efficiency, gaining a competitive edge. 

This is despite the UK’s strong tech sector and clear enthusiasm from manufacturers about emerging technologies like AI, robotics and automation. 

Rockwell Automation's ‘State of Smart Manufacturing’ Report, which surveys manufacturers from across the globe highlighted this earlier this year. It found that 73% of UK companies invest 21–50% of their operating budget in technology – the highest level in Europe.

The report also showcased clear enthusiasm from UK manufacturers towards AI.

The report found 94% of UK manufacturers, the highest percentage of any country surveyed, expect to use AI and machine learning (ML) in advanced analytics.

So with this commitment, how has the UK been outpaced? Some argue - including manufacturers themselves - it's down to the lack of digital skills in the current manufacturing workforce.

A third of manufacturers in the report said a lack of skills was the most significant barrier to them implementing smart manufacturing technologies – the highest percentage of all European countries surveyed

4. Energy Costs

The UK continues to have the highest electricity bills in the world, with Brits paying more than anywhere else on the planet. 

According to FRP’s 2023 report ‘Against the odds: The future of UK manufacturing’ 37% of manufacturers identified elevated energy costs as their biggest operational obstacle over the previous year.

The more expensive energy is, the higher operational costs are, massively reducing competitiveness.

Energy doesn’t have to be a hurdle to success though, according to Kelly Becker, Schneider Electric President of UK and Ireland, Belgium and Netherlands.

She argues that harnessing the energy transition and making green power part of a broader industrial strategy will be crucial for the UK to regain its title as a global manufacturing power.

“The UK has huge potential to regain its position as a manufacturing superpower if it harnesses the transformative power of the energy transition.

"This needs to be a key part of the forthcoming Industrial Strategy which should assess and support the manufacturing and uptake of solutions that contribute to the decarbonisation and digital transformation of the UK economy and infrastructure.

"Many of these manufacturers are creating new, highly skilled jobs across the country and will help to supercharge local economies and maximise the UK’s competitive advantage globally, by developing local expertise and creating new trade and investment opportunities."

The UK government since 2010 has supplied £300bn (US$384.8bn) to low carbon investment.

A further £100bn (US$128.2bn) is expected to be added to power the UK’s energy transition by 2030, creating up to 480,000 new jobs.

These sustainable investments, while important, don't overshadow the low investment in renewables.

In the last three years, the rest of the world recorded much higher levels of growth in renewable capacity, with the UK lagging behind.

This is because the UK’s transition to renewables is full of challenges, primarily with its infrastructure. 

The UK’s grid network was designed for a one-way flow of energy, via large power plants to consumers.

It’s also built on an ageing foundation, with components that date back to the post-war era.

Kelly believes these challenges can and must be addressed through further investment: “Long-term investment in the manufacturing industry, such as maintaining and expanding full expensing, will be critical to driving growth and prosperity, help the UK reach net zero and set the standard for climate and sustainability standards globally.”

5. Policy and Investment

Another factor in the drop is the UK government’s industrial strategy and policies, which haven’t sufficiently fostered a robust manufacturing environment. 

Investment is one critical dimension of this, with other companies investing far more in manufacturing infrastructure, research and development and building a talent and training pipeline for the next generation of workers.

Another is oversight and involvement. In the US for example, many states have appointed Heads of Manufacturing, experts who coordinate manufacturing advancement and policies in alignment with broader industrial goals. 

Sophie believes with the arrival of the UK’s new government, there will be an opportunity to start over, heighten manufacturing investment and resecure the UK’s place in the top ten. 

“The new Labour Government's industrial strategy could be a beacon of hope for reversing this trend,” Sophie says. 

"By creating an environment that encourages investment, the government is poised to catalyse growth in key sectors.

"We welcome their engagement with industry leaders to foster a collaborative approach to innovation and development.

"The focus on investing in facilities, equipment and people is essential for establishing cutting-edge manufacturing operations and ensuring long-term progression.” 

Dr Graham agrees, noting that: “The government’s plans to change UK manufacturing’s fortunes through a new industrial strategy and key investments from the National Wealth Fund can’t come soon enough.”

He also highlights the importance of addressing the manufacturing skills gap here in the UK, which will impede progress unless addressed. 

"As part of this, a major upskilling and reskilling programme will be critical.

“Without the right people with the right skills, we won't be able to hit productivity targets, even with the latest ideas, technology and funding in place.”

Perhaps another factor in the UK dropping off Make UK’s list is its history.

For so long manufacturing was not a major priority and governmental bodies and stakeholders arguably continue to operate with this mindset.

But this mindset doesn’t match the modern economic landscape of the UK, where manufacturing’s potential as an economic catalyst is needed once more.

As industry and government reassess this news, the nation’s manufacturing sector may be set to see some major changes.

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