It's a complicated matter, but from what I understand, the British industry had been declining since the late 60s or the early 70s. As the result of nationalist and supply and demand economic policies, there was little incentive to invest on manufacturing tools and improving labour skills. Manufacturing cost was expensive compared to their competitors, so most of the British wealthy chose to invest in the service sector. Politicians like Callaghan tried to push back against this shift and make British manufacturing competitive again by taxing the service sector, limiting pay raises and such, but it was met with heavy pushback which led to what was known as "Winter of Discontent". Thus, Thatcher was elected, and she deregulated the market while pursuing a monetarist policy that hurt British exports. Trade unions were seen to be a scary and powerful that threatened the crumbling British industry back then, but Thatcher's policy to remove their bargaining power altogether was proved even more detrimental to the industry
TL;DR manufacturing lost, finance won. They couldn't keep up with the rapid pace of the Japanese and German industry, and those who tried to save it did a few blunders that caused a pushback. Ultimately, most of the western world was flirting with neoliberal policies that reduced the power of their industrial sector as manufacturing jobs and tools were sent over to the eastern world for maximum profits, but Britain certainly doubled down on it.