Measuring what matters: the real value of manufacturing in the UK economy

By Dr Jennifer Castañeda-Navarrete, drawing on the report The changing value and structure of the UK manufacturing sector, commissioned by the  Department for Business and Trade (DBT)

How large is manufacturing in the UK? At first glance, the answer seems straightforward: around 10% of the economy. But this familiar figure tells only part of the story. It relies on a narrow definition that overlooks how modern manufacturing actually operates.

Manufacturing extends well beyond factory gates. It is embedded in a wider network of suppliers and supporting services, including knowledge-intensive activities such as engineering, design and R&D. Capturing the value of this system requires moving beyond traditional definitions and adopting a value chain perspective, one that reflects how economic activity is organised in practice. When we do so, the scale and significance of manufacturing in the UK economy looks markedly different.

The hidden size of UK manufacturing: a value chain perspective

Using this value chain approach, the UK’s manufacturing system contributed around £331 billion to the economy in 2022 and supported 4.3 million full-time equivalent jobs. This corresponds to roughly 15% of national value added and 14% of employment, significantly higher than conventional estimates of 9.1% and 7.1%, which focus only on direct manufacturing activity (Figure 1).

Other studies report even larger figures. For example, Oxford Economics estimates that manufacturing contributed £518 billion to UK GDP and supported 7.3 million jobs in 2022 when wider multiplier effects are included. Our estimates instead focus on the supply side of the manufacturing value chain and thus exclude consumption-driven impacts from wages. This approach was validated by the Office for National Statistics (ONS) and the Department for Business and Trade (DBT).

How the UK compares internationally

When placed in an international context, the UK’s position becomes concerning.

Using harmonised OECD input–output data, the broader manufacturing value chain accounted for just 15% of UK value added in 2019. This is well below Germany (33%), Switzerland (29%), and even France and the United States (both at 19%).

More troubling still is the trend. The UK experienced the sharpest decline among the countries analysed, falling from 23.6% in 1999 to 15.1% in 2019. In contrast, Switzerland saw only a modest reduction, from 30.7% to 28.8%.

A fragmented industrial ecosystem

One way to understand the manufacturing value chain is through the concept of value added “multipliers”, that is, how activity in one sector generates additional economic value through its value chain. In countries such as Germany, manufacturing draws heavily on domestic suppliers, both within manufacturing itself and across other sectors. This creates strong, interdependent industrial ecosystems.

In the UK, manufacturing is less connected to the rest of the economy. In Figure 2, this appears as a lower “indirect effect” (blue markers), meaning manufacturers rely less on inputs from other industries. As a result of this, the multipliers (bars) are also relatively low, showing that manufacturing creates fewer knock-on benefits across the economy. In short, the sector is not only smaller, but its impact spreads less widely.

This fragmentation has consequences. It limits productivity spillovers, weakens innovation diffusion, and reduces the resilience of supply chains. It also means that growth in one part of the economy is less likely to translate into broader industrial dynamism.

The role of services

One popular explanation for UK manufacturing’s apparent decline is that it has been “hollowed out” and replaced by services, particularly professional, scientific and technical activities.

There is some truth in this. The UK has seen a notable increase in the role of these services within the manufacturing value chain. Their contribution rose from 2.3% of the total value added in 1999 to 3.4% in 2019, the largest increase among the countries analysed.

Business services have also expanded, reaching levels comparable to France and Germany. And the UK stands out for its relatively strong contribution from IT, media and communication services.

However, the UK still lags behind other countries in the overall integration of knowledge-intensive services into manufacturing.

When examining purchasing patterns, the evidence is mixed. UK manufacturers are buying more professional and technical services over time, but this trend is not unique to the UK. However, service firms are purchasing fewer manufactured goods, suggesting a weakening of two-way linkages (Figure 3).

Why this matters for policy

This evidence highlights several key implications for policy makers.

First, the decline of UK manufacturing cannot be dismissed as a measurement issue. Even when we account for its wider value chain, the sector remains smaller and less integrated than in other advanced economies.

Second, this matters because manufacturing is not just another sector. It is typically more productive than the economy average, and it plays a central role in innovation, exports and technological upgrading. A weak manufacturing base therefore constrains long-term growth.

Third, this is not simply a matter of scale, but of structure and how industries connect. The UK’s industrial ecosystem is characterised by weaker interdependencies than those of leading manufacturing economies. Strengthening these connections will require targeted, sector-specific policies informed by a value chain perspective.

Further details on the methodology and analysis are available in the report The changing value and structure of the UK manufacturing sector, commissioned by the  Department for Business and Trade (DBT). This project is part of DBT’s efforts to improve understanding of the advanced manufacturing sector and support the department’s ongoing monitoring and evaluation work.

Explore the report: The changing value and structure of the UK manufacturing sector