Three productive anchors of the UK economy
There is a wide range of jobs in the British economy, the majority of them in the service sector. But for all this diversity, there are three key parts of the economy that act as Britain’s productive anchors. These are manufacturing, financial services and business services. Between them, these three sectors account for over 70% of UK exports. They also have much higher Gross Value Added (GVA) – a measure of economic output – per job than other parts of the economy; in a sense, they create much of the value that other, more labour-intensive sectors feed off.
These three productive anchors are hugely important to our economic recovery. If we want to re-balance our economy and resume economic growth, we need either to grow these areas or find new high-value, high-export drivers of growth.
This chart shows how these three productive anchors have changed over time. The chart has a wide range of indicators for you to choose; from trade performance to GVA and jobs.
The story appears as follows:
- Manufacturing: The manufacturing sector still dominates British exports. It is far more export-facing than any other part of the economy. Despite this, Britain has a trade deficit in manufactured goods because we import so many of them. Over the last 20 years and beyond manufacturing has shed millions of jobs and has seen its overall output stagnate. But, despite this, it is productive and high-value and has become more so in recent years. While manufacturing has been in decline to some extent, it remains critically important to our economic health, because it is highly productive and accounts for such a huge share of our exports.
- Financial services: The UK economy is often said to be reliant on financial services. That is something of a myth. Financial services is a very high-value industry and is a very strong export performer, but it employs relatively few people and has created no new jobs in recent decades.
- Business services: In many ways, the business services sector has joined manufacturing as the mainstay of the UK economy. The business services sector has created millions of jobs and is a high-value sector. While the business services sector has a very strong net trade performance, exports remain relatively low given the size of the sector. Turning business services into a mass export sector should be a top priority for revitalising the UK economy.
Much of the rhetoric around economic re-balancing has been about the need to move back towards manufacturing and away from financial services. But this line of argument misses the point. It is exports and high-value activities that matter and whether they are manufacturing or services is relatively unimportant.
Source: Data drawn from ONS Pink Book, Workforce Jobs Survey and UK Economic Accounts
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