150402 GDP and its components
  • The march of the makers? Like Tuesday’s To The Point post, this is an addendum to my recent article on whether the economy has rebalanced under George Osborne. Remember when the Chancellor said, in his Budget speech of 2011, that he wanted to see “a Britain carried aloft by the march of the makers”? Judging by the graph above, it hasn’t quite worked out like that. It shows how various sectors of the economy have grown relative to their size at the start of 2008. You’ll notice that the manufacturing sector is yet to regain the mass and power it lost.
  • A snapshot, not a prediction. But this graph is, to use Lord Ashcroft’s dictum about opinion polls, more of a snapshot than a prediction. It doesn’t capture how the manufacturing sector was hollowed out in the years before the crash: it declined from making up 18.5 per cent of our economy in 1997 to around 10 per cent in 2008. And it also doesn’t capture what the sector could achieve in future. Optimists would point out that manufacturing grew by 2.5 per cent last year, and all without a healthy market for exports. Many within the industry seem pleased with the more recent course of things.
  • The services sector is so big… The problem, in a way, is the size of our services industry. It’s not just the only sector that has expanded beyond its pre-crash bounds; it also represents over 78 per cent of our economy. This has a very real effect on, among other things, the jobs that people take. If you need a job quick, and most of them are in the services sector, what are you going to do? Train up for the manufacturing jobs that aren’t so prevalent?
  • …that it’s rebalanced by itself. We’ve seen this effect during our slow recovery from recession. People have needed jobs quick, and the bigger, faster, stronger services sector is able to provide them. About 80 per cent of the jobs growth between 2012 and 2022 is expected to come that way. In fact, it’s so dominant a sector that, rather than a rebalancing away from services and towards manufacturing or anything else, the rebalancing has come within services. As PricewaterhouseCoopers put it in a recent report, “Public administration and financial services have contracted significantly in terms of output and employment in the past four years, but this has been more than offset by strong growth in professional, business and support services and the health sector.”
  • Things to come. Will manufacturing prevail? Will it ever make up 22 per cent of the economy, as it does in Germany? The answers lie somewhere in the Government’s apprenticeships policy and the growth of the exports market, as well as in a thousand other unknowables. But I wouldn’t hold my breath in the meantime. With the services sector poised to take over four-fifths of our economy, a proper rebalancing would take decades, not years. The makers could run out of puff on so long and arduous a march.

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