Evaluation of UK Manufacturing: Causes of a Slowdown in Growth

Any business needs to produce some kind of services or goods for sale, and in order to do so, the firm must transform inputs into output. When it comes to production decisions, this just simply means that the producers take into consideration availability, market demand, costs, substitutes, competition and many other factors when they decide on the supply of goods and services in the market.

In the recent economy, the country suffered a supply chain crisis. The main problem for the supply was the labour availability, especially in the health and manufacturing industries. This was due to the COVID-19 pandemic, and even worse, Brexit, which severely exposed a scarcity of lorry drivers that resulted in shortages of products and empty shelves in the stores. However, the Office for Budget Responsibility latest report suggests that 'supply bottlenecks had been exacerbated by changes in the migration and trading regimes following Brexit' and even more, government is now ultimately forced to grant short-term visas to EU workers in order to solve the crises.

Therefore, the inputs and costs are usually impacting the production decisions related to the supply of goods and services when the companies start a brand-new project and they are trying to figure out exactly how much costs and inputs would there be involved, which are the two main factors in the supply-side of economics since they contribute the most when it comes to determinate the volume of services and goods in the market. Basically, the higher the usage of inputs, the higher the cost of production, which results in lower profits.

In 2012, had a short growth in the manufacturing sector which was pulled back the rising costs of oil from February 2012. All this was due to the fact that the manufacturers were facing increased costs for the price of transport, chemicals and even energy. These increasing oil prices made most of manufacturing industries shift in 2014 from manufacturing in the far East for cheap production, which was dominant in Britain and the world during 2010-2014, to manufacturing. The efficiency savings in China decreased and flights were much more expensive due to the costs of the oil so the far East became less and less attractive, even though that the flexibility and the options offered by the factories in the far East were just not available. For example, didn't have a central comprehensive database which made it almost impossible to find manufacturers in the first place. The lost all of those auxiliary services that are necessary for the manufacturing industries, especially in fashion and textile. Therefore, when someone from the textile industry, as an example, was trying to look for leather manufacturers on the internet and through the Yellow Pages, there was nothing to be found.

In 2016 however, textiles and apparel manufacturing industries were on top. The number of apparel manufacturers increased by 10.7% to 3,830 firms, with textile manufacturers rising by almost 5% to 4,030. There were lots of factors that were helping this impressive increase, the main ones being a continued export demand for produced textiles and apparel, rising costs of overseas production, an increased need for supply control and flexibility on the part of the brands and retailers, and lastly, but not the least, much greater customer awareness of production.

The study from the Office for National Statistics and Revenue and Customs (ONS) also revealed that the number of people employed in the textile sector was at its highest level then since 2006. There are lots of great examples, such as the likes of Fashion Enter, which started in 2010 and by 2016 already has more than 100 people in Haringey, in north, plus all the textile firms who have invested a lot during 2010-2015 or brands that have built themselves with a DNA of manufacturing, such as men's lifestyle brand Shackleton.

Moreover, it was revealed a long-term optimistic picture as a result of retailers' wanting greater flexibility and control over their supply chains as well as rising overseas wages. The European Union represented the most important trading partner for many manufacturers and even though Brexit is a challenge it could also provide new opportunities, even in the textile industry, as sourcing in euros and dollars became more and more expensive.

Not every single fashion company was able to keep it all 100% in 2016, but it's easy to argue that the costs were the main reasons why the production choice to look at other countries such as China, Cambodia, Bangladesh or Vietnam was absolutely inevitable. A suit made in one of these countries was on sale in for £199, it's only the closest to countries such as Eastern Europe, North Africa and Turkey that were considered to manufacture more 'luxury' suits. Since the labour costs are so much higher and the English manufacturers don't want to undermine their reputation, most English suits that are made are for sale for at least £800.

Since 2016, according to The Office for National Statistics released figures, that= general manufacturing of clothes drastically declined and imported over £18bn of clothes in a year, but only exported £5bn worth.

In October 2017, there was a slowdown in growth manufacturing due to weak pound raises costs. Sterling's depreciation was expected to benefit manufacturers since their services and goods became more competitively priced to foreign buyers, however, the costs of the raw materials used in the processes of production were also rising since most of them were imported.

The steel industry also suffered a lot. It was hit by multiple factors such as the extra costs of climate change policies, high energy prices and, also, much stronger competition from China which was selling steel at ridiculously cheap prices. In 2014 imported 687,000 tonnes of steel from China, up from 303,000 tonnes in 2013. Chinese steel imports were 583 euros a tonne while steel imports from other European countries cost 897 euros a tonne at that time, according to Eurostat, the European Union's statistics agency. The steel industry was also severely suffering because energy-intensive businesses, such as steelmakers, were facing much higher electricity prices. Scottish Power announced in 2017 that the company will raise electricity prices by 10.8% and gas prices will increase by 4.7%. This price change was the result of months of cost increases that were significantly rising the fixed price products which needed to be reflected in standard prices.

All things being said, every single firm out there and not only, is seriously taking into consideration multiple factors when they are making production decisions, the two most important being what and how much inputs and costs would be involved in a project. During the period of 2010 to 2019, manufacturing industries dealt with lots of changes and challenges, mostly caused by Brexit in 2016 and the COVID-19 global pandemic.