The hidden engine: what electronics and electrical equipment reveal about UK industry

By Zongshia Fan

For advanced economies such as the UK, manufacturing competitiveness increasingly rests on a combination of scale and specialised capabilities. Innovation, technological expertise and specialised production can generate significant value, while their wider economic contribution depends in part on how far they support domestic production and employment. The electronics and electrical equipment sectors provide a useful illustration of both the opportunities and the challenges associated with this model.

Drawing on Section 3 of the UK Innovation Report 2026, this blog examines how the two sectors compare with their counterparts in other leading manufacturing economies across value added, employment, productivity, trade and R&D. Their experience raises an important question for industrial strategy: how might the UK build on its high-value specialisation to support a broader base of domestic production, exports and high-quality employment?

Diverging growth paths: electronics expands while electrical equipment remains flat

Together, the electronics and electrical equipment sectors account for 10% of UK manufacturing value added and 13% of manufacturing exports. While relatively small by international standards, both sectors are highly productive, reflecting the UK’s strength in knowledge-intensive manufacturing.

The two sectors have followed different value-added trajectories. Between 2000 and 2024, electronics grew at an annual average of 5.8%, quadrupling in size from £4.1 billion to £16.1 billion. This was substantially faster than UK manufacturing as a whole, which grew by 1.6% a year. Electrical equipment, by contrast, grew by only 0.4% a year over the same period. Its output was broadly stable until 2018 and then rose from £5.5 billion to £8.1 billion between 2018 and 2020, before falling back after the pandemic.

The contrast highlights different growth paths within UK manufacturing: electronics has expanded substantially, while electrical equipment has not yet established a comparable trajectory.

Within electronics, the strongest performance came from instruments and appliances for measuring, testing and navigation. Between 2010 and 2023, the subsector increased its value added by £2.9 billion and also recorded the largest employment gain in electronics. This performance reflects the UK’s strengths in precision engineering and scientific instrumentation, including competitive firms such as Renishaw.

This represents a relatively healthy growth path: higher value added was accompanied by more jobs. The pattern was not shared across electronics and electrical equipment. For example, communication equipment recorded positive value-added growth of £255 million but lost 3,900 employees between 2011 and 2023.

This divergence suggests that growth in individual high-value activities may not always lead to broad-based industrial expansion. From a policy perspective, it may therefore be useful to distinguish the subsectors that combine technological strength with domestic production and employment.

Productivity gains do not necessarily translate into employment growth

Labour productivity in electronics grew at an annual average of 8.7% between 2000 and 2024, far outpacing UK manufacturing as a whole, although it has declined from its post-pandemic peak. Electrical equipment followed a more volatile path: it broadly tracked manufacturing before the global financial crisis, underperformed between 2009 and 2018, rose sharply until 2021 and then declined. Productivity can reflect genuine technological upgrading, but it may also rise when employment falls faster than output; it therefore needs to be read alongside employment.

Both electronics and electrical equipment lost roughly half of their employees between 2000 and 2024, compared with a 30% decline across UK manufacturing. This pattern suggests that the two sectors have become increasingly specialised and capital-intensive, generating more value with fewer workers. While this has supported strong productivity performance, employment gains have been more limited than in a growth model where productivity is accompanied by expanding production.

In electronics, this contraction occurred despite strong value-added growth. The divergence reflects a shift towards highly productive activities, alongside a decline in more labour-intensive manufacturing. Automation and digitalisation have enabled firms to produce more with fewer workers, while parts of production have moved offshore or become concentrated among global suppliers. The sector therefore remains technologically competitive, although its strong productivity performance has coincided with a narrower base of domestic production and employment.

Electrical equipment presents a related, though less positive, picture: its employment contraction was accompanied by much weaker value-added growth, reflecting modest expansion as well as outsourcing and offshoring.

Trade deficits highlight the limits of specialisation

In 2024, the UK recorded a trade deficit of £29 billion in electronics and £16 billion in electrical equipment. Exports increased in both sectors between 2010 and 2024, growing by 1.4% a year in electronics and 3.7% in electrical equipment. Imports, however, rose more quickly: by 2.1% and 6.0% a year respectively. As a result, both deficits widened.

These deficits partly reflect the UK’s reliance on imported consumer electronics, computers, microchips and electrical products. In globally integrated supply chains, a trade deficit is not by itself evidence of industrial weakness. Nevertheless, the scale and persistence of these deficits suggest that success in selected niches has not fully offset the loss of production capacity elsewhere in the two sectors.

In 2023, the UK had the world’s third-largest trade deficit in electronics and its second-largest in electrical equipment. The UK therefore appears to capture value in selected activities while also relying heavily on overseas production to meet wider demand.

The global export market has also been reshaped by geopolitical and industrial change. The UK’s share of electronics exports fell from 5% in 2000 to 1.1% in 2023. Much of the earlier decline occurred as production shifted towards Asia: between 2000 and 2015, China gained market share from the UK and other advanced manufacturing economies. China still accounted for 22.2% of global electronics exports in 2023, well ahead of other major exporters.

Since the mid-2010s, however, this pattern has partially reversed. US tariffs and trade frictions with China from 2018, and increasing salaries and production costs, helped redirect some trade from China towards the United States, European economies, Southeast Asian economies, and Taiwan. Taiwan emerged as the clearest beneficiary, with its export share rising sharply after 2015 and reaching 8.6% in 2023.

The UK also experienced a slight recovery after 2015, but its global position remains much smaller than at the start of the century. This suggests that positions in global production networks are not fixed, and that the UK’s recovery could capture wider value if it supports domestic investment and production.

Connecting R&D strength with domestic industrial scale

Electronics R&D expenditure fell between 2000 and 2010 but has generally increased since then. Electrical equipment R&D remained relatively stable until 2019 and has grown since the pandemic. These trends suggest that firms continue to invest in technological capabilities that could support future growth.

R&D investment alone does not necessarily guarantee that value will be captured through domestic production. The experience of electronics and electrical equipment suggests that innovation can coexist with declining employment, import dependence and large trade deficits. These findings point to the benefits of treating R&D, scale-up and manufacturing capability as connected objectives. Strong innovation capabilities could underpin future growth, particularly where firms are able to expand production, deepen domestic supply chains and compete in export markets.

From specialised niches to broader industrial growth

The strongest electronics niches show where this model can work. Activities such as metrology, photonics, medical technologies and compound semiconductors demonstrate that the UK can compete where performance depends on specialised knowledge, quality and regulation rather than cost alone.

Specialisation can provide a strong foundation, while its wider contribution will also depend on whether firms can expand production and employment in the UK and connect their capabilities to domestic supply chains.

Geopolitical realignment may create new opportunities for this transition. The UK’s future manufacturing competitiveness is likely to depend not on sustaining specialised capabilities while building industrial capacity around them. A key question is whether these strengths can become platforms for investment, production, exports and high-quality jobs across the wider economy.

Explore the UK Innovation Report 2026