With major manufacturing companies cutting jobs and closing plants in the north of the UK, it comes as no surprise that it has a been a difficult few months for the manufacturing industry, but what do the latest figures show? And what is the solution?
The steel sector in the UK has been one of the hardest hit areas, with TATA Steel recently cutting jobs at their Lanarkshire and Scunthorpe sites, Caparo Industries filing for administration, and Thai-based SSI closing their Redcar site in Teesside.
Overall, this has caused thousands of job losses in the UK steel industry, and further redundancies are also expected; all the more concerning when you consider the latest figures researched by our team of manufacturing lawyers.
What do the latest figures show?
Manufacturing is a hugely important part of the UK economy and accounts for around 10% of GDP. Despite the sector being significantly affected during the 2008 recession, it managed to recover between 2010 and 2012, from which point its performance has been rather unpredictable.
The Office for National Statistics states that, as of August 2015, the manufacturing sector is up 0.8% compared with the same period the previous year, but the CIPS Markit UK Manufacturing PMI has identified that September was a poor month for the sector.
Following the manufacturing recession, the remote prospects of an interest rate rise from the Bank of England have now all but disappeared, as well as a current dip in construction output. British manufacturers are also suffering from declining demand, both at home and abroad, according to a survey of factory managers by the business group CBI.
What are the reasons for this?
UK manufacturing relies heavily on foreign investment. The strength of sterling has had an adverse affect on the sector, particularly in relation to export costs.
The continuing problems in the steel industry have been partly to blame, with significant criticism being levelled at China. The Chinese steel industry is subsidised by its government, and in 2013 produced around 0.8 billion tons of steel a significant proportion of global production.
Other factors impacting upon the manufacturing industry include an increase in energy prices, changes in regulation, and the implementation of a climate change policy.
The reasons for a decline in demand have also been linked with a downturn in China and the global economy, in addition to the possibility of further spending cuts in the government’s upcoming review.
The CBI director of economics Rain Newton-Smith states:
“Manufacturers have been struggling with weak export demand for several months, because of the strength of the pound and subdued global growth. But now they’re also facing pressure back home as domestic demand is easing.”
What is the solution?
The Business Secretary, Sajid Javid, has created a metals strategy which aims to direct contracts towards UK steel producers, and has also advocated for the EU to take action to counter the “dumping” of steel from China and the Far East.
An even more extreme solution of nationalising the struggling sectors of the UK steel industry was suggested by Shadow Chancellor John McDonnell.
Some operators in the manufacturing sector are less concerned, particularly those who have been able to take advantage of depressed steel prices; steel used in the production of the Trident nuclear submarines, for example, has often been supplied from France, while the Nissan plant in Sunderland only receives around 25% of its steel from the UK.
Rain Newton-Smith suggests that further investment in the people is required:
“Over the longer term, strong investment in innovation and skills is vital to boosting our performance in exports, enhancing our manufacturing growth, and improving productivity. It’s crucial that the Government acts decisively to protect spending in these areas as part of the upcoming comprehensive spending review.”
Similar comments have been echoed by Andrew Sentence, the former chief economist at British Airways and an ex-Bank of England rate settler:
“We need to change the image of manufacturing to recognise that it’s more about technology and skills. That might attract more people to work in the sector.”
The impact of these issues cannot yet be fully assessed, and this may well result in the continued uncertainty in the performance of the manufacturing sector as whole.
Have you been affected by the jobs cuts and closures in the UK steel industry? Please share your thoughts in the comments below.
If you have any legal questions concerning anything outlined here, or any aspect of manufacturing law, do not hesitate to get in touch with one of our engineering and manufacturing lawyers at Harrison Drury.
Nick Booth is the head of our manufacturing solictors team in Preston, and can be contacted on 01772 429025, or by email at firstname.lastname@example.org.