Britain risks losing thousands of skilled manufacturing jobs to countries like China, Japan and Brazil unless the Government takes on a more ambitious industrial strategy, a think-tank has warned.
Civitas has called on the Government to follow the activist approach seen in the decades following the Second World War and intervene in the aerospace and automotive sectors as other countries pour money into similar industries.
Policies that could be pursued include investing in new small-scale aircraft and a public finance scheme for automotive suppliers similar to the "launch aid" schemes that supported aerospace in the 1950s, the think-tank's report said.
Report author Kaveh Pourvand wrote: "The coalition could and should be more ambitious in its industrial policy.
"It has proposed industrial strategies for both the aerospace and automotive sectors.
"However, the scale of these interventions is limited, focusing on resolving narrowly-defined 'market failures'."
He went on: "The reason we have a successful car and aerospace industry today is that previous governments were proactive in shaping a comparative advantage for Britain in these sectors. This was especially true of Margaret Thatcher.
"What is required now is a similar ethos, not of 'big' or 'all-knowing' government but bold government, prepared to take the steps necessary today to ensure economic success tomorrow."
Reduced defence spending and the entry into the aerospace market of countries like China, Japan, Brazil and Canada means Britain needs large-scale investment in new products and technologies if it is going to retain its pre-eminent position in the sector, the report said.
Mr Pourvand said: "China in particular has invested heavily in its aerospace industry.
"The danger is that greater competition from abroad combined with less defence spending at home will eventually lead to aerospace jobs and production going overseas.
"Once lost, these are very difficult if not impossible to re-establish."
The UK automotive industry is facing even greater challenges as the domestic supply chain is weak and the market dominated by foreign-owned firms that put a disproportionate amount of their higher-value activities in their home countries, according to the think-tank.
Mr Pourvand said: "The Government can take more steps to improve the domestic supply chain.
"Shortage of finance is a key problem holding back automotive suppliers, but the Government's strategy for the sector lacks any substantive proposals to remedy this problem."
A spokesman for the Department of Business, Innovation and Skills said: "The Government has committed over £4 billion to industrial strategy to support long-term growth, leveraging billions more in private-sector funding across key sectors and supporting flows of business finance and encouraging competition in banking through the Business Bank.
"Created in partnership with business, our industrial strategy represents a shared vision of the industries of the future based on existing strengths.
"Our collective focus is now on implementing the 11 sector strategies to provide business with the certainty and confidence to invest.
"The Government is determined to help build a stronger economy and a fairer society, which is why we have invested billions alongside industry in new research centres to develop the technology to produce greener, cleaner and more efficient planes and cars.
"These will ensure we continue to compete on the world stage in these key sectors for jobs and investment in the UK."