The rise in output has been driven by a pick-up in capital goods production and intermediate goods and energy, says a report in the Financial Times, suggesting that companies in the UK and abroad are investing more in equipment.

The news comes coincides with calls for the new government to appoint a minister for manufacturing to ensure the sector’s long term future and ensure the sector’s heartlands can play a full role in future economic prosperity. The call came from James Newman, head of the Sheffield-based Company of Cutlers which represents, South Yorkshire-based manufacturers.

He says the sector needs ‘incentives’, such as capital allowances, to enable companies hit by the recession to make investments in machinery and staff.

Of course, manufacturing continues to play a key role in the Yorkshire economy as a whole, both in terms of output and employment. In fact government figures show that there are nearly twice as many people employed in manufacturing in West Yorkshire as there are in South Yorkshire and that as a city Leeds is the UK’s second largest centre for manufacturing outside London.

It also bursts the bubble of some popular misconceptions. The loss of manufacturing jobs is a global phenomenon and it has been particularly severe in the UK where the last 30 years have seen the loss of some 4 million manufacturing jobs. But this has been matched by massive gains in productivity to the extent that in 2006 the UK was still the sixth largest manufacturer in the world and the real value of manufacturing output continues to grow.

It’s a case therefore of relative, rather than absolute, decline and growth has been maintained in the face of incessant and fierce price competition from emerging economies. The survival of UK manufacturing is a success story and the sector has a depth of experience from which others could learn.

However, the image and definition of manufacturing desperately needs updating: many ‘manufacturers’ today are integrated solutions providers providing complex bundles of specialised goods and services. Key opportunities in the future exist in the development and exploitation of new technologies, intellectual property and complex product / service combinations that cannot be easily replicated or commoditised.

For this to happen there’s an urgent need for closer collaboration between government, academia and business. Government needs to develop a tax regime, including incentives such as tax credits, that encourages investment in R&D, capital expenditure and energy efficiency.

Overtime, labour cost differentials will diminish and sources of competitive advantage will shift towards unique knowledge and skills. Much closer collaboration is therefore needed between industry and UK universities to more fully exploit their research capacity and intellectual property.

Some of the other key points form the report include:

• Low value of sterling offers a temporary cushion against the worst effects of the recession but cannot provide a source of long-term competitive advantage and the report authors note that despite the relative weakness of the pound, the balance of trade with the Euro zone has worsened.
• UK manufacturing faces a serious deficit in technical skills and continued los of skills, rather than competition, could eventually make UK manufacturing unsustainable: jobs and skilled employees lost in a recession do not tend to come back as the economy recovers.
• Training needs to improve. foreign industrial investors are often dismayed at the levels of training needed by UK employees
• at the same time there is a desperate need to improve the image of manufacturing is vital: young people will not train for careers in manufacturing and engineering if they think there’s no future in them.
• There’s a desperate need for investment in both R&D – spend as a percentage of GDP is lower in the UK (1.8%) than in other countries such as Germany (2.5%), Japan (3.3%), the US (2.6%) and Sweden (3.8%).
• And there’s a need for much greater support for entrepreneurship: only 4% of investment goes into venture capital in the UK compared to 33% in the US.