A view of the Bank of England and the financial district, in London, Britain, September 23, 2024. REUTERS/Mina Kim
London: Almost all of Britain’s growth in the past five years has been driven by just two superstar sectors, laying bare the task facing Prime Minister Keir Starmer to revive swathes of the economy.
Analysis shows an outsized contribution from technology and science-based industries is concealing a two-speed recovery, where sectors from hospitality to manufacturing are struggling to expand.
A third of sectors accounting for almost 20% of gross value added (GVA) are still below their 2019 levels of output almost five years after Covid struck, with others including real estate and construction barely higher.
Instead, Britain has relied on two – information and communication and professional, scientific and technical activities – to power its patchy performance on the back of a wave of innovation.
The figures illustrate the mountain Starmer has to climb to deliver on his pledge to make Britain the fastest-growing economy in the Group of Seven (G7).
That hinges on the strongest performers continuing to boom, and the many misfiring sectors picking up steam.
Potentially at stake is Labour’s grip on power.
Its landslide election victory in July – and the rise of the far-right Reform UK party – was partly the result of the Conservatives’ failure to make good on its pledge to “level up” poorer regions of the country that are more reliant on traditional industries.
Chancellor of the Exchequer Rachel Reeves promised at the Labour Party conference last week to deliver a “budget for economic growth” on Oct 30.
Since the end of 2019, the British economy has been outpaced by every other G7 nation except Germany.
However, she is up against a recovery that is running out of steam, in part due to Labour’s dire warnings about the public finances and the prospect of tax hikes.
While figures due out today are expected to confirm the economy grew a healthy 0.6% in the second quarter, more recent indicators suggest the pace has slowed to around 0.3% a quarter, as forecast by the Bank of England.
Gross domestic product stagnated in July for the third month in four, while a key purchasing management survey showed activity cooling in September.
The sectoral analysis covers a tumultuous period for Britain when Brexit, Covid, worker shortages and the worst bout of inflation in decades damaged some firms but technological advances lifted others.
Information and communication and professional, scientific and technical activities contributed almost 90% of the 2.8% overall expansion in GVA since the end of 2019, with the former sector growing over 20%.
There has been particular strength in telecommunications, computer programming, science research and development, and certain professional services, such as law and accounting.
“The tech sector has seen strong demand for services such as artificial intelligence (AI), automation, data analytics, cloud computing, and cybersecurity,” said Martin Sartorius, principal economist at the Confederation of British Industry.
“Firms across various industries have been investing in these technologies to enhance efficiency, security, and decision-making capabilities,” Sartorius said.
Britain has been highlighted as likely to be one of the biggest growth winners from AI taking off given its dependence on professional services.
Agriculture, a sector heavily affected by Brexit, is one that has struggled, suffering a sharp plunge in output from fishing in particular.
Manufacturing, mining and quarrying, and hospitality were among the other sectors to shrink since 2019. — Bloomberg
