The UK must balance its economy across geographies and sectors to boost growth and productivity

As the UK’s economic growth and productivity levels slowed down this year due to uncertainty, an economist has said it is important to balance the economic output and strength across regions and sectors.

Dean Turner

Speaking to TheBusinessDesk.com, economist for UBS Wealth Management, Dean Turner, predicted the UK we will see around 1.1% or 1.2% growth this year – down from 1.8% in 2017. However, he is confident that next year, the UK’s economy could grow by 1.8%.

“As we are peering into 2019, the global picture is that the global economy is slowing after a couple of years of decent growth. In the UK, I think we can actually buck that trend.

“While growth has been disappointing this year, there are a few trends playing our in our economy. I always look at two areas: consumption and investment.  Consumption is fairly stable. But there is some volatility in GDP linked to investment cycles. There has been a downward trend in business investment as Brexit gets nearer and nearer. I don’t see that changing in the immediate term.”

Reflecting on 2018, which saw peaks when the summer weather encouraged people to spend, but also downturns when the snow hit the country in January, Turner said: “Quarter by quarter data is so lumpy because of one-off specific events. Just because one month drops in growth it doesn’t mean that it will automatically re-bound. We are a service led sector economy and to smooth out the lumps and bumps in that economy doesn’t really hold true.”

Turner added that once there was clarity in Brexit, the economy could “re-bound next year,” especially as household incomes were holding firm, wage growth is “robust” and national minimum wage adjustments are expected.

He added: “The other factor is that two months ago was a budget which signalled fiscal easing next year, expected to be around 0.3% of GDP. That helps to support the economy recover  from pretty weak growth for the UK.”

Turner said that these contributing factors could signal the way for two interest rate rises in 2019, as long as the UK’s the Brexit deal goes through. He also commented that productivity levels also slowed through 2018 and that the way to counteract this was to ensure that UK’s economy was balanced across geographies and sectors.

Turner added: “In the past, the UK’s economy was too focused on the south east and we are starting to see that change. Diversification in geographies and sectors is important if we are going to get the most of the economy.” He added that there was evidence of “cluster confidence” where firms have invested in regional economies and a catalyst for growth and productivity.

Brexit had compounded problems this year, added Turner, wiping around 2% off the economy in the last two years.

Aiden Dunstan

Aidan Dunstan, regional head for UBS in Yorkshire and the North East, agreed that the regional economy’s diversity was essential to give it stability.

He said: “The lifeblood of our business is what businesses have been created, bought and sold. In that respect, 2018 has been a strong year.

“There have been plenty of transactions and sales across a broad mix of sectors – property, technology, transport and healthcare. It has led to us seeing a 25% revenue growth this year.

“That is down to us having good people and a good brand but also because businesses are growing in the region and succeeding. While that is encouraging, there is some evidence of companies reacting to the ongoing Brexit fallout. Entrepreneurs do not like uncertainty We have found that clients and wider businesses are going out to the States and Asia for growth and some have benefited from the ongoing weaknesses in the sterling. Engineering has been a strong part of that.”

Dunstan added that while they are doing what they can, businesses has in recent months paused. He said: “The pipeline of new deals is less visible.”

He said that cash was still available but the like of private equity houses were “just pausing as to how they deploy it.”

Dunstan said: “It doesn’t mean that 2019 will be a bad year but I think we will see more deals in the second, third and fourth quarters.

“There is an entrepreneurial spirit across the regions. Determination is very strong.”  He feels that businesses are now more focused on delivering a better product or service than ever before.

Reflecting on a tough year for the retail sector, Turner said: “There is definitely weakness in some areas of the retail sector but it’s all about location, location, location. It is a sector going through structural adjustments. I believe there will still be a long term demand for physical shops.

“Someone like myself looks at how that impacts employment. With around 20,000 jobs lost in the sector this year, that in itself is extremely challenging. But against a backdrop of circumstances that have skills and labour shortages, one hopes that the economy has the ability to support that.

“It is a competitive world and increasingly difficult. Finally we have started to see wage growth in the UK.”