LONDON: Industries servicing Britain’s shopping habits have accounted for a quarter of UK growth since the Brexit referendum, more than double their normal importance, highlighting the economy’s vulnerability to a consumer slowdown. Official figures show the unusually unbalanced nature of growth since the vote on June 23 last year: industries accounting for 45 per cent of output were responsible for all of the total growth recorded, while a third of industries were contracting. The figures come from the Office for National Statistics’ “low-level aggregates” of the economy every quarter, which were updated last week. Even though the ONS’s measurements are stuck in the 1950s, with disproportionate detail on manufacturing in a service-dominated economy, they provide insight into the unexpectedly strong economic performance since the Brexit vote. The figures underpin the headline statistics for gross domestic product but are rarely explored — though some caution is needed as Nick Vaughan, chief economic adviser at the ONS, told a conference last week that “parts of the service sector are not just ill-measured but completely mismeasured”.
For instance, the ONS measures the output of the “manufacture of vegetable and animal oils and fats”, accounting for 0.02 per cent of the economy, with the same degree of precision that it measures the entire education sector, which forms more than 6 per cent. The unbalanced nature of growth since the Brexit vote is illustrated by the unlikely fortunes of Britain’s film workers and its remaining coalminers: both are part of the two most successful industries since the EU referendum. Mining of coal and lignite grew 18 per cent in the final two quarters of the year, while film, TV production and music production expanded 12 per cent, according to the ONS.
The difference comes in their importance for the overall economy. While Britain used to light, heat and power itself with domestic coal, the mining sector now accounts for only 0.01 per cent of the economy. Thus, the £25m of value-added it produced in the second half of 2016 did not go far in an economy that produced £850bn of output over the same period. As recently as 1996, mining of coal produced £1bn of output, so the recent uptick is a tiny reversal of a long decline. By contrast, the film industry has had a successful three years both at the box office and in production. Box-office sales grew rapidly in 2015 and were boosted last year by the success of UK co-productions including Rogue One: A Star Wars Story, Fantastic Beasts And Where To Find Them and Bridget Jones’ Baby, according to industry statistics. Almost half of the 0.2 per cent growth in the whole service sector in December came from this area. But with production revenues applicable to the UK high since 2014 and box-office receipts volatile, further growth in the industry might be more difficult in the years ahead.
The retail sector, comprising the retailing and wholesaling of goods including cars, is much bigger, so although growth was lower at only 3 per cent in the period after the referendum, its 10 per cent weight in the economy allowed the sector to contribute 25 per cent of all growth in the second half of last year. Retailing and wholesaling has been driving the UK economy for longer than the past six months, as consumers have increased their spending faster than their incomes have been rising. Over the past two years, it has contributed 22.8 per cent of the economy’s 4.7 per cent growth.
Economists have learnt never to write off the UK consumer and the sector has benefited from an increase in finance and leasing in new and second-hand cars, which has boosted purchases. However, few think this disproportionately fast growth can last. Sir Charlie Bean, responsible for overseeing the chancellor’s economic forecast at the Office for Budget Responsibility, has warned of a “significant slowing” in consumer spending over the next couple of years. For all winning sectors after the Brexit referendum, there are also losers, comprising a third of UK output, where performance has declined since June. Some are statistical artefacts without real-world consequences — such as imputed rent, which is calculated but not collected — but others are more surprising, including the production of vehicles, which run counter to industry stories of record output. Britain’s love of shopping, however, does not seem to include cakes. The figures show that the manufacture of “bakery and farinaceous” products has been one of the worst performing sectors over the past two years. The Great British Bake Off effect has perhaps led to a “home-made” resurgence showing up in official figures.