Following recent reports that the UK economy has surpassed its pre-crisis position and is now considered by the IMF as the fastest growing advanced economy, recent news that the service sector’s economic growth has hit a stumbling block raised somewhat of an alarm for the future position of the UK economy. The CBI, a business lobby group, outlined a deceleration in the growth within the service sector throughout the last three months and reported that currently business was at the slowest point of growth since last August. Whilst presently these findings are polarized within the service sector, Katja Hall, Deputy Director General of the CBI, believes that what we are currently witnessing provides insight for the future.
Subsequently, many economists have questioned the longevity of the UK’s current economic growth and predictions have arisen for a substantial cooling period towards the end of this year in terms of economic growth. Interestingly, this activity is also not a uniquely UK phenomenon. Simultaneous to the CBI report, financial data firm Markit outlined that whilst the US service sector is enjoying a strong growth phase, it’s recovery has lost some considerable momentum since hitting a post-crisis peak in June this year.
However, the negative connotations that come with these reports must not supersede the relative optimism that still permeates the service sector. Whilst this news arguably raises some questions regarding the lifespan of the UK’s continued economic growth, the fact that the CBI report also outlined that over a quarter of consumer services firms have plans to increase investment within the near future indicates that those within the service sector itself do not feel concerned for its future.
In fact a CBI survey of 215 firms concluded that 44% of professional services firms experienced an increase in head count within the last three months, which means that employment has been growing at its fastest pace since November 2007. With this, 16% are expected to invest in land or buildings, the highest since 2010 and 43% of firms deemed business to be better than three months ago. It is seemingly apparent that the slowing of economic growth within the service sector will not bear problems for employment and that with the projected continued expansion, employment levels are expected to reach a record high within the next quarter.
The more pressing issue outlined by the CBI survey actually counters speculation that the slowed economic growth could be the catalyst for any potential hindrance to employment levels. Rather than concerns being focused on potential job losses, the CBI survey revealed that the main concern expressed by service firms was the looming shortage of professional staff. 45% of the surveyed firms fear that staffing shortages will limit their expansion during the coming years and will consequently have a negative knock-on effect to the UK economy. These firms are reporting difficulties in recruiting workers with the advanced STEM skills required and key sectors such as manufacturing, construction and engineering are experiencing acute problems. At the top of many employers concerns lies the basic literacy and numeracy level of school and college leavers along with their general attitude to work.
Essentially, this all boils down to the much-needed reforms within the education system, which are hopefully to be seen following the recent cabinet reshuffle and appointment of Nicky Morgan. However, the fact that GCSE results this year saw particular success within Mathematics (albeit arguably to the detriment of English results) does indicate a more promising future for a nation desperate for the qualities that STEM students possess. It is thus clear that rather than painting a negative picture of the current service sector, the results of the CBI report should be utilised as valuable insight into the needs and requirements of service firms and with this, the UK economy.
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