There’s clearly something odd going on with the statistics on the UK economy. We are in recession – or so we are told (GDP fell 0.7% in the last quarter). Yet the private sector appears to be in great shape – it has created over a million new jobs since 2010 and unemployment has now fallen for four months in a row. Total employment is now a mere 0.3% below its pre-crisis peak despite the fact that on official numbers output is 4.5% below the previous numbers. So what’s going on?
Here’s Tom Miers on the subject in the Scotsman today. He thinks – like many others – that the UK economy might actually be doing rather better than most think. “Exports, services and manufacturing have all recorded decent figures in recent months”, he says. At the same time most business surveys are pointing to “modest (if patchy) improvements in order books and confidence”, while the fall in the rate of the rise in the CPI means that real wages are no longer falling quite as fast as they were. That’s good for confidence and consumer spending. Add all that to the good employment numbers and the obvious conclusion is this: the dismal GDP figures are “simply wrong”. Our economy is not contracting. It is growing.
This makes some sense. But there might be another way of explaining the rise in employment and fall in GDP – falling productivity. Miers considers this to be highly unlikely “given the shift (in the employment mix) from the public to the private sector”.
But my oft quoted friend Nick Reid offers a possible way through this confusion – and one that also explains why the UK tax-take has been falling as fast as it has (City bonuses are predicted to be down 80% this year). It’s the decline in the number of people employed in the financial sector.
Whether you approve of its particular brand of productivity or not, says Nick, “City activity is highly productive”, and in plain GDP terms one investment banker operating in a good environment is many times as productive as, say, a car plant worker.
So, with some types of City activity knocking around a ten-year low, it might be no wonder that, in statistical terms at least, our productivity has fallen. You might think this doesn’t matter, and perhaps it doesn’t – the City might generate one kind of production we can do without – but the idea could at least explain why we are employing more people but they are producing less.