UK economic structural changes: a longer-term perspective
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses some longer-term structural changes in the UK economy:
- The services sector has extended its dominance over the past 20 years. Its share rose from 72% in 1997 to nearly 80% in 2009, partly reflecting the buoyancy of financial services. Its share has “stalled” around 80% since then, partly reflecting the retrenchment in financial services. Over this period, many other service groupings have out-performed GDP, including “professional, scientific and technical activities”.
- Production’s share fell from over 21% in 1997, to around 14% by 2009, since when it has been fairly steady. Within production, manufacturing’s share fell from 17% in 1997 to 10% in the mid-late 2000s, since when it has appeared to stabilise. The share of mining and quarrying fell from 2% in 1997 to 1% in 2017. Construction’s share has pick up modestly over the past 20 years.
- Exports of services have grown significantly faster than exports of goods between 1997 and 2017. In 1997 services were around 40% the value of goods, in 2018 they were over 80%.
- In 2017, exports of goods accounted for 55% of total trade, services accounted for 45%.
- The goods deficit has sharply deteriorated over the past 20 years, partly offset by an improving services surplus.
- The total trade deficit (goods and services) with the EU has sharply deteriorated over the past 20 years, partly offset by an improving non-EU surplus.
- The share of UK exports (goods and services) to the EU has decreased, from 55% in 1999 to 45% in 2017. In 2017, 48% of UK exports of goods went to the EU, and only 40% of services.
UK developments have included:
- There was more evidence of a slowing economy. GDP growth was 0.3% (QOQ) in the 3 months to November, compared with 0.4% in the 3 months to October and 0.6% in 2018Q3.
- The Markit surveys suggested the economy was growing at only 0.1% in 2018Q4.
- NIESR estimated that GDP growth was 0.3% in 2018Q4, though picking up to 0.4% in 2019Q1.
- The growth of unsecured consumer credit continues to decelerate. Growth was 7.1% (YOY) in November and well down on the recent peak of 10.9% in November 2016.
- Labour productivity (output per hour) fell by 0.4% (QOQ) in 2018Q3, reflecting a 1.0% increase in hours worked, only partly offset by the 0.6% increase in GDP.
- The trade balance narrowed slightly in current prices terms in the 3 months to November, reflecting higher export prices, but deteriorated in constant price terms.
Brexit developments included:
- The Commons “meaningful vote” on the Withdrawal Agreement is planned for 15 January 2019.
Ruth Lea said, “The UK economy is services dominated, with 80% of GDP attributable to the services sector. Perhaps more interestingly, our export trade is increasingly geared towards services, which now comprise 45% of total exports. Given that services exports, biased towards non-EU markets, are growing quicker than goods, this proportion can be expected to increase.”