Weaker GDP growth symptomatic of failure of the London-centric model
The economy grew by 0.3% in the first quarter of 2017, down on 0.7% in the final quarter of 2017. More than 80% of the first quarter growth was driven by business services and finance.
As the chart shows, the increased contribution here (in light grey) was not enough to offset the reduction from the fall in spending on shops (‘distribution…’ in red), as well as reduced growth in manufacturing (green) and construction (yellow).
The result here resonates with TUC analysis issued this morning showing the dominance of London and the South East, the capital of business and finance.
Contributions to quarterly GDP growth, percentage points
Source: ONS and TUC calculations
We won’t know how recent GDP growth is allocated between the regions for some time yet – the latest figures are for calendar year 2015. At that point London and the South East accounted for 37.8% of the UK economy. This share has been steadily increasing since the financial crisis. Our simple projections show London and the South East accounting for 40% of the UK economy in 2022.
London and the South East, % of UK GDP
Source: ONS and TUC projections
[The analysis projects forward the share of regional/national GDP on the basis of trends between 2010 and 2015. These figures are not a forecast, but simply an assessment of outcomes if existing trends continue. See fuller detail in our press release]
The dominant source of growth over the whole of last year was consumer spending. With credit still expanding it might be too early to call the consumer having run completely out of steam (see here). But in the wake of a renewed living standards crisis, relying on shopping to prop up the economy doesn’t look like such a good idea.
There is an unpleasant irony here. The flaws of the finance-oriented and London-centric economy were starkly exposed in the financial crisis from 2007/08. Yet in the aftermath London has pulled away from the rest of the country at a rapid pace.
The TUC has long argued that a comprehensive industrial strategy is essential for rebalancing the economy, and for bringing strong growth and decent jobs to all parts of the UK. It is calling on the parties to make manifesto commitments to:
- Invest more in infrastructure, to enable the UK to compete with other advanced economies. Digital and communications, transport, water and flood defences, and house-building all need additional support.
- Use public procurement policy to improve jobs and pay, by sourcing goods and services from companies that give workers decent pay and conditions, and by ensuring that companies wishing to invest in skills and apprenticeships are not overlooked in favour of those seeking to compete on low cost.
- Grow the UK’s green economy, by setting a robust target of 50 per cent of the UK’s energy coming from renewables by 2030 and making sure new green jobs are delivered to areas that need them most.
- Target low paid sectors of the economy, to find ways to improve productivity and raise skill requirements so workers have better pay and conditions.
- Give workers a stronger voice, by putting workers on company boards and giving worker representatives seats on industrial sector councils and bodies like the National Institute for Apprenticeships.