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.”

Ruth Lea CBE has been Arbuthnot Banking Group’s Economic Adviser since 2007 and was an Independent Non-Executive Director from 2005-2016.

Ruth co-founded Global Vision in 2007 and was Director until 2010, and was previously the Director of the Centre for Policy Studies (from 2004 to 2007), Head of the Policy Unit at the Institute of Directors (from 1995 to 2003) and Economics Editor at ITN (from 1994 to 1995).  Prior to ITN she was Chief UK Economist at Lehman Brothers, Chief Economist at Mitsubishi Bank, worked for 16 years in the Civil Service (the Treasury, the DTI, the Civil Service College and the Central Statistical Office) and was an economics lecturer at Thames Polytechnic (now the University of Greenwich).

She is the author of many papers and articles on economic issues and has been a Governor of the London School of Economics and Council Member of the University of London.

Tel: 020 8346 3482
Mobile: 07800 608 674
Email: ruthlea@arbuthnot.co.uk

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