Exploring index of production data for six major UK manufacturing sectors,
we investigate the interaction of the UK business cycle with changes in the
industrial structure of the UK economy during the last three decades. We p
ropose a Markov-switching vector equilibrium correction model with three re
gimes representing recession, normal growth and high growth. The regime shi
fts simultaneously affect the common growth rate and the sectoral equilibri
um allocation of industrial production. In contrast to previous investigati
ons, a common cycle can be uncovered which is closely related to traditiona
l datings of the UK business cycle.