Manufacturing outlook on the up as automation takes hold - UKEO

22 March 2018

The latest UK Economic Outlook has an interesting focus on industry and automation with the view that by the mid-2030s, over 40% of existing jobs in the UK retail and wholesale sector could potentially be impacted by automation. A move that conversely, is likely to reduce prices for consumers, stimulating demand for other services and new jobs where tasks are less likely to be automated.

Automation is also a key issue facing the manufacturing industry. In our 2018 Global CEO survey, we found that 69% of CEOs believe that emerging technologies, such as Artificial Intelligence, Blockchain and robotics will disrupt their current business models in the next five years. In addition, 40% of industrial manufacturers said they’d need to strengthen their innovation and digital and technology capability to turn this into competitive advantage and capitalise on new opportunities.

Our Industry 4.0 analysis shows that manufacturers expect to reduce costs by 3.6% p.a. and increase revenue by 2.9% p.a in the next five years as direct result of Industry 4.0 and digitisation.

Technological innovations will create new jobs, ranging from online website designers and AI specialists to those involved in designing, supervising, repairing and maintaining robots. But according to the CEO survey, 38% of UK businesses are finding it difficult to attract the right kind of digital talent. In response, 63% are either using or planning to use apprenticeships and internships to grow their workforce while developing the skills they need.

Manufacturers themselves are also responding to tackle this skills gap. In light of automation and the changing relationship with customers, we also expect to see a shift of focus from product to services. As a result, manufacturers will need to ensure they balance critical technology skills with innovation, creativity, empathy and leadership capabilities.

Economic impacts

While the UK manufacturing sector output remains slightly below pre-crisis peak levels, it has generally been on a rising trend since 2015, bouncing back strongly in the second half of 2017. A higher demand for UK goods exports because of stronger global and European demand, as well as the competitive value of sterling, could help to explain this recent upward trend.  

From a regional perspective, this bounce back has helped parts of the UK with stronger industrial bases such as the North and the Midlands, as well as Wales, which saw a 3.1% increase in its impact on GVA during the period 2009 to 2016.

It’s encouraging to see that our economists predict UK manufacturing will continue to enjoy a revival this year, mainly as a result of stronger exports. Export growth could moderate again in 2019 as the competitiveness gains from a weak pound fade.

Our recent manufacturing report highlighted the fact that manufacturers have recognised the importance and the opportunities new manufacturing technologies offer. Investment in new manufacturing technologies offers the opportunity to ensure lead times remain competitive and that productivity challenges are addressed. The benefit will be a lack of input price rises which may otherwise dampen the strong level of momentum we have seen.

Manufacturers are facing unprecedented change over the next decade; from Brexit to automation and the fourth industrial revolution, the range is vast. The only thing we know for sure is that standing still will not be an option. Businesses will need to transform their business models in order to respond to emerging trends and stay ahead of the game.

Cara Haffey  |  Partner, Industrial Manufacturing and Automotive Leader, part of the PwC network
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