Productivity is key

Nia Williams

July 28, 2015

Tony Ward is chief executive of Clayton Euro Risk

Productivity is the watch word again. A number of articles in the press recently have focussed on its importance – where the UK sits in terms of its relationship with Europe and the rest of the world etc. The Boston Consulting Group’s global manufacturing cost competitiveness index suggests that UK factories have made inroads in terms of their competitiveness compared with the US and China, but have lost ground to European rivals. This drags down British exports. Last year, the UK was overtaken by the Netherlands and also underperformed against France, Germany and Italy. The country improved its position on the previous year, but not as much as others.

This isn’t entirely surprising given Mark Carney’s comments in the Bank of England’s recent quarterly inflation report, in which he made specific reference competitiveness, explaining how worried he was about the “underlying weakness” for productivity growth.

The one exception to all of this is the manufacturing sector. Since 2009, output per hour at factories has grown by nearly 2% a year and is about 5% better than before the crisis.

British car makers are an excellent example of this. The UK’s motor manufacturers had their busiest six months since 2008, producing 793,642 cars in the first half of the year. In fact the volume of cars coming out of UK factories was up by 5.4% last month prompting the Society of Motor Manufacturers  (SMMT) to suggest that Britain is on track to overtake the peaks of the early 1970s. Of course much of this demand is driven by continental sales, which were almost 15% last month and more than 8% better in the year to date, but it’s all headed in the right direction.

SMMT chief executive Mike Hawes said that productivity in British car plants had risen by 35% in five years and was running, per employee, at double that of the rest of UK industry. “The sector is ahead of the game on productivity, with investment in efficient high-tech manufacturing processes and a highly skilled workforce resulting in huge gains over the past decade,” he noted.

Hopefully this will set a bar which manufacturers will strive to achieve.

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