Figures released on Thursday showed that the UK economy grew by a steady 0.5% in the last quarter of 2015. This is the first estimation, and there are two more opportunities for that to be revised over the coming weeks, though they rarely are.
One the face of it it seems like good news. There was growth throughout 2015, with an annualised rate of 2.2% on the year previous. But it’s when you start to dig a little deeper that you can start to see chinks in the armour. For example, that 2.2% rate of growth is well down on the 2.9% growth experienced in 2014. In fact, the growth in the fourth quarter is made up of two ends of the spectrum which really encapsulate the whole of the UK economy in a nutshell.
Manufacturing vs services
According to figures on the BBC website, manufacturing fell in Q4 by 0.2% and construction declined by 0.1% – not good news for those hoping for a boost from all these new houses that David Cameron has promised to build. On the other side of the coin, the services sector i.e. consumer spending, rose a strong 0.7% in the last three months.
In other words, if we had not had Christmas and the public hadn’t put their hands in their pockets, it would have been a very dicey quarter.
And this is where the problem lies with our economy. The service industry in the UK contributes a staggering 78% of GDP to the whole economy. The service sector (or service industry depending on your inclination) involves consumer spending at many levels, be it retail, wholesale, transport, distribution or entertainment. The financial industry, based in London, is our second biggest economic contributor, followed by aerospace industry, pharmaceuticals and then the automotive sector.
Our economy is hugely unbalanced right now, and there is really only one sector driving the economic growth in this country and that is the service industry. The problem is, if the general public start to get a little twitchy and decide that it’s time to tighten the belts and focus more on paying down personal debt, it is the engine of growth that is the service sector that will get hit first and will get hit hardest. Those quarterly GDP figures may then start to look a tad weak.
There are many risks in the world right now which could quite easily knock us off course. We’ve managed to dodge a few bullets so far, but we can’t keep doing that. The Chancellor George Osbourne has to very swiftly get other parts of the economy moving again. Not only to boost weakening quarterly GDP reports, but to also create a few supports should the services sector take a bit of a tumble.
Regionally there is also a great disparity as to where the growth is coming from. If you look to London and the South East of the UK, that’s where most of it is coming from. Get yourself outside of these areas and it all gets very sluggish. The general commentary out of the industry so far this year seems to be that unless you’re down south then it’s a bit of a struggle. The North/South divide appears to be getting wider every month. Mr Osbourne really does have a task on his hands if he is to pull off the Northern Powerhouse idea. I don’t think many up here believe that will happen.