Box C: Deindustrialisation in the UK

Paul Mortimer-Lee and Xuxin Mao

National Institute UK Economic Outlook, 2022, issue 6, 30-36

Abstract: When people talk of "the industrialised countries" they are talking about rich economies with high living standards. Industrial development has been at the heart of several countries' development strategies, including success stories such as Japan, South Korea, and China. Many of the fastest-growing economies over recent decades have seen rapid industrial development. Against this background, does it matter that the UK has the smallest share of industrial output in GDP of any country in the G7 (see Figure C1)? Or that it has seen the most significant decline in manufacturing share of all the G7 economies since 1970 (Figure C2)? This box examines how the manufacturing sector has evolved and suggests that its importance in the economy has shrunk considerably because both domestic and international market forces made this a rational and efficient use of resources as manufacturing has been relatively unprofitable compared with services. To raise manufacturing's share again, the UK needs to cut consumption and run with lower interest rates and a softer exchange rate.

Date: 2022
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