GDP figures: The accidental rebalancing of the UK economy
Sky's Economics Editor explains why the Brexit vote has had a role in creating an accidental rebalancing of the economy.
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You've probably heard this complaint before: that economic output is too imbalanced, that this country is too reliant on consumer spending, on debt, on the high street rather than on manufacturing, that we don't make stuff any more…
The odd thing is that if balance is the hallmark of economic success, Friday's gross domestic product figures, which showed the UK economy growing by only 0.3% in the first quarter – the weakest rate since before the referendum – are a triumph.
Look at the breakdown: the manufacturing sector grew by a healthy 0.5%. Indeed, far from dropping into recession in the past two quarters, it has had the best six months for two years.
The construction sector grew by 0.2% and services, the sector Britain has become so reliant on in recent years, grew by 0.3% – the weakest rate in two years.
And for those who complain that our economy is way too skewed towards the high street, there was further good news in the data: the retail sector's economic output shrank by 1.3% in Q1 – the biggest fall in seven years. Hurrah! Right?
Well, not really. And this is where the rebalancing argument falls down. For when Britons spend less on the high street, the economy almost always suffers a slump. When estate agents are doing badly, that means the country is more likely to do badly. In fact, these days, the real estate sector (12.8% of total GDP) is more important to total UK economic output than manufacturing (9.8%).
This is a nation of shopkeepers, estate agents, financiers and support service administrators. And we have been that nation for some time.
Estate agency has been generating between 12p and 13p in every pound of UK economic output since at least the 1990s. Manufacturing has shrunk over that period, as has agriculture, but they have not been the dominant sectors for decades. Like it or not, rebalancing is painful.
Though it's not altogether clear that the dip in retail sales and services charted in the latest GDP figures is actually about rebalancing. It may just be a temporary consumer slowdown. We have known for some time that consumers had started to slow their borrowing, and that that was likely to prefigure a high street slowdown.
It seems logical that if inflation is higher (as it is) without wages rising much to compensate that (they are not), people will feel a little less confident about spending – and indeed that's precisely what the surveys are suggesting.
Is it the Brexit effect? Well, probably a bit. The fall in the pound after the referendum has exacerbated that real wage squeeze which, in turn, has discouraged people from spending.
Then again, there has been no recession – far from it. The UK economy may not be whizzing along at the moment, but it is, for the time being, still growing faster than most other European economies.
The big question is what happens next. And certainly, the chances are there is more disappointing economic news in the coming months.
After all, there are two more years of tough Brexit negotiations to come – plenty of time to take stock before Britain's eventual departure.