Jeremy Warner: Manufacturing is getting harder hit even than banking

Outlook: The aim is a more "balanced" economy after all the credit-fuelled consumption of recent years, with a much bigger role for good, old fashioned manufacturing. Mervyn King, Governor of the Bank of England wants it, the Prime Minister and the Chancellor want it, and David Cameron, leader of the Opposition, has made it so much a part of his policy agenda that he's sent members of his team out to the provinces to become "embedded" in the Rolls-Royce manufacturing process.

All of a sudden, it's again fashionable to think of manufacturing as a thoroughly good thing and a highly desirable source of growth, jobs and prosperity for the future. One of the few positives of the downturn is said to be that it might help bring about a healthy rebalancing of the economy away from spending and consumption and towards investment and production.

Unfortunately, there is very little sign of it so far. To the contrary, judging by new figures published yesterday, what remains of Britain's once mighty manufacturing base is being hit even harder by the downturn than the bankers who started it all. Factory output dropped a stomach churning 7.4 per cent year on year in November, its worst fall since the meltdown of the early 1980s, which decimated the car and coal industries. The depreciating pound, which theoretically should make our manufacturers more competitive, seems to have done little to help in an environment where demand across the globe has fallen off a cliff.

But if you think it's bad here, it's even worse on the Continent. In Germany, industrial output fell 10 per cent and in Sweden by 11.9 per cent. In France, it is down by 9 per cent, and in Spain by 15.1 per cent. It's carnage out there. In such circumstances, you might perversely argue that it's actually a rather good thing that only around 15 per cent of the UK economy is now dependent on manufacturing. Things would feel more painful still if it were higher.

In any case, the reality on the ground hardly supports everyone's new found love affair with manufacturing. The more "balanced" economies of the Continent are performing just as badly as Britain, if not worse. We look back with nostalgia to the horny handed men of toil who used to work these lands, yet that manufacturing past was never the bed of roses people sometimes imagine. Today's manufacturing is vastly different.

Capital intensive and employing ever fewer people, its British success stories these days are the likes of Rolls-Royce, and the myriad of little precision engineering businesses that live along the M40 corridor high on the hog of Formula One and other largely customised contracting. Rolls-Royce, Britain's star manufacturer, makes most of its money not from jet engines and turbines, but from servicing these pieces of machinery, and much of its workforce is engaged in design, testing and the science of metallurgy. Does that make it a manufacturer, or more of a garage and lab?

Britain's economy may have become a little too dependent on financial services in recent years, but it is still immensely diverse and creative and perhaps more important still, it is strongly rooted in the "knowledge-based" industries of the future, be they manufacturing or service-based. Manufacturing needs all the support and help it can get, but it would be completely wrong to revert to the old days of hidden subsidies and soft loans to support supposedly strategic or politically favoured industries. The Continentals have more manufacturers, but are they any better off for it?