Latest GDP figures confirm UK economic growth in 2014
The latest GDP figures released by the Office for National Statistics confirmed UK economic growth in 2014 of 2.5% and showed that the economy slowed in the final quarter, growing by 0.5% compared to 0.7% in Q3. The service sector continues to drive the economy, accounting for nearly all of the growth in the final quarter (except for the smaller agriculture sector). Both construction and production (which includes manufacturing) declined in the final quarter, which does not suggest broad-based economic growth in the UK.
Broad conclusions are too often drawn from one set of figures, but in this case they do merit some cause for reflection. The early ambitions of the government to “rebalance” the economy away from service sector employment and into manufacturing, thus reducing the dependency on consumer expenditure and boosting exports, seem like a distant memory. In reality, there is only so much a government can do to achieve this, unless they are prepared to increase spending in certain areas, which was never an aim of the current administration.
However, a strong and growing economy would surely exhibit broader growth patterns and it is worth noting that while the service sector is 7.9% larger than before the recession, construction and manufacturing are 7.9% and 10.6% lower respectively.
Thank goodness for the housing sector then as this has fuelled much of the consumer expenditure growth in recent times. In addition, it helped to boost output in real estate activities, which form part of the service sector.
So why does construction continue to perform variably while the service sector consistently grows? Of course, scale matters and the majority of economic activity in the UK occurs in the service sector. However, it is clear that while housing is the mainstay of growth in construction, the levels of output in commercial and infrastructure are not what one would expect in a growth period. The attitudes of commercial investors, particularly outside of London, are going to be vital for industry growth prospects over the next few years.
Michael Dall is an economist at Barbour ABI