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Cambridge University and top business leaders have joined forces to create a new Institute for Manufacturing to act as a focal point for the industry.

The institute will bring together the economics and policy work of the Foundation for Manufacturing and Industry with the existing activities of the university's manufacturing and management division. The merger will result in an institute boasting a staff of 50 working on a Pounds 3 million a year programme of activities spanning all the major sectors of the industry.

Mike Gregory, head of Cambridge's manufacturing and management division, said: "The institute will, for the first time, bring together people concerned with policy, strategy, operations and technology for manufacturing industry. The aim is to create a community of industrialists, researchers and students in which policy, practice and innovation can be closely integrated."

Professor Gregory said that by doing this, manufacturing industrialists will be better placed to communicate the importance and nature of their industry to economists and politicians. Despite the decline in manufacturing in Britain, Professor Gregory believes the future for the industry is bright: "It is accepted that low labour costs are an incentive for companies to move abroad. But firms are looking less at just low labour costs - they are becoming more interested in balancing labour costs with close proximity to top engineering and design talent."

Sir Trevor Holdsworth, former chairman of GKN and ex-CBI president, says the institute, which he will chair, will have "a distinctive role linking education, research and industry to enhance the competitiveness and profile of manufacturing and development of knowledge-based industries".