The UK was the first country to industrialise, leading the way with the industrial revolution. However, since the Second World War, the UK has experienced a process of deindustrialisation – a shrinking size, importance and share of the manufacturing industrial sector.
Deindustrialisation refers to the long-term decline in the relative importance of manufacturing and heavy industry in an economy. It is usually measured by a falling share of manufacturing employment, manufacturing output, or manufacturing’s share of GDP. At the same time, the service sector expands, so the economy becomes more “post-industrial”.
At the end of the Second World War, UK manufacturing was around 33% of GDP, today it is around 8%
Causes of UK Deindustrialisation
1. Globalisation
In the post-war period, there was a growth in global trade as a share of GDP. This meant the UK had easier access to imports. Since the UK was losing comparative advantage in Manufacturing, globalisation sped up the decline.
The loss of traditional export markets after the end of the British Empire compounded these trends, reducing demand for UK-produced goods at a time when global competition was intensifying.
2. Decline in competitivness
From 1970 to 2000, the UK often experienced the highest rate of inflation in the developed world, so UK exports were becoming uncompetitive. Productivity was rising faster in countries like Germany and Japan. Reasons for this decline in competitiveness include.
- Lack of investment
- Slow to adopt new technology – still running steam trains into the 1960s
- Poor worker/management relationships – characterised by long strikes, especially in 1970s and early 80s
- Complacency in post-war period after winning war, and sense of national importance
- High spending on defense in the post-war period.
3. 1980 Recession
In the early 1980s. North Sea oil revenues and tight monetary policy pushed sterling to a high value, making exports expensive and uncompetitive. This imposed severe pressure on manufacturing exporters, accelerating closures across industrial regions.
This shows the long-run devaluation in the value of the Pound. But, if you look closely, from 1977 to 1980, the Pound appreciated from 1.65 to 2.45 – But, manufacturing exporters couldn’t cope with this near 40% appreciation in Sterling, so it caused a deep recession, high unemployment, especially in manufacturing
The unemployment of early 1980s were strongly linked to deindustrialisation – UK industry never recovered
At the same time, government policy prioritised controlling inflation and reducing subsidies to state-owned firms. The withdrawal of support for coal, steel and other heavy industries, combined with reforms that weakened trade unions, meant that restructuring happened quickly and with substantial job losses.
UK deindustrialisation was particularly strong in industries like coal. In the 1920s, one million people were employed in the coal industry, today it just a few hundred.
4. Transition to services
The UK also transitioned toward a service-based and finance-led economy more rapidly than many other countries. As London grew into a global financial centre, high-value service industries expanded and increasingly dominated national output. This economic success encouraged further specialisation in services but left manufacturing relatively neglected, especially as Britain invested less in vocational training, R&D and advanced engineering compared with Germany or Japan.
This shows how business services and finance have replaced the role of manufacturing.
London and the South East also attracted most of the transport investment and infrastructure development.
Second Wave of Deindustrialisation 2008 onward
The UK experienced another dip in manufacturing during the credit crunch. Although we think of this as financial distress, it was manufacturing that was hard hit. Although it recovered in the late 2010s, UK industry was really hit hard by high energy costs from 2021 onwards.
With the highest industrial price of electricity, industrial production fell.
Does it Matter if a Country Deindustrialises?
Arguments that it doesn’t matter
- The decline of manufacturing is not necessarily harmful, because advanced economies tend to specialise in services as incomes rise, technology improves and consumer demand shifts.
- As wage rates rise, you would expect an economy to shift away from labour intensive manufacturing. By buying cheaper clothes from China, it increases the disposable income of UK households to spend on domestic services.
- Shifts in sectors of the economy is inevitable. In 1700, 90% of the workforce were employed in agriculture. Technology has allowed people to give up manual, backbreaking jobs and move to factories, then service sector
- Although we tend to romanticise jobs like being a coal miner and heavy industry. The jobs were often dangerous, dirty, difficult and not particularly well-paid. Miners
- In 1981, there were 500 fatal accidents. In 2019/20, there were just 111 workers fatally injured at work, a rate of 0.34 fatalities per 100,000 workers
- The UK has benefited from strong service-sector growth, especially in finance, education, creative industries and professional services, which has helped maintain GDP growth even as manufacturing employment fell.Though, since 2008, credit crunch, growth rates have definitely slowed down.
- Deindustrialisation has also coincided with cleaner air, higher productivity in remaining industrial sectors and a shift toward high-value, knowledge-based activity.
- CO2 emissions have fallen since 1970, there has also been a reduction in other issues such as smog and ozone pollution
Seen from this perspective, the shrinking manufacturing share of GDP is a natural feature of economic development rather than a sign of failure.
Costs of Deindustrialisation
The decline of heavy industry happened rapidly and unevenly, leaving certain regions—such as the North East, South Wales and parts of Scotland—with persistent unemployment, low investment and long-term social deprivation.
Deindustrialisation has exagerrated regional inequality, with most prosperous area clearly in London and South East, former industrial heartlands have struggled to attract good jobs.
Manufacturing often provides stable, middle-income jobs for workers without university degrees; when these disappear, the replacement service-sector jobs may be lower paid, more insecure and less unionised. This contributes to wider inequality and reduces social mobility. Certainly average incomes have not done well since the second era of deindustrialisation starting 2008 (though there are many other factors behind this()
A reduced industrial base can also limit export capacity and expose the economy to imbalances, relying heavily on consumer spending and financial services rather than a broad production base.
The UK has a large deficit in trade in goods, and this has contributed to growing balance of payments current account deficit.
One impact of the trade deficit since deindustrialisation is that the UK relies on capital/financial flows, e.g. foreign investors buying UK assets.
The Covid pandemic and energy shocks highlighted the risks of a country becoming overly dependent on global supply chains and too small a domestic manufacturing sector. Also geo-political shocks, such as Ukraine War raised problem of relying on energy imports. It also raised fears about what would happen if China became less reliable and started to choke exports to the West, especially of critical goods, like pharmaceutical products.
Overall, deindustrialisation matters not because manufacturing is inherently superior, but because the UK’s transition was faster and more regionally concentrated than in many comparable economies. The key issue is not the decline of industry itself but how well the economy manages the adjustment—whether workers are supported, new industries emerge, and regional inequalities are addressed.
The problem isn’t so much deindustrialisation as the fact the economy has large weakness, such as low productivity, low investment. All factors which contributed to deindustrialisation, but mean the service sector hasn’t fully replaced former jobs.
This video explains much of the UK’s industrial decline
Related
- The Spectacular Decline of the UK Coal Industry
- What determines the competitiveness of British Industry?
- Deindustrialization
About The Author
