Recent figures from the Office for National Statistics points to a healthy construction environment.
The figures, released this January, show that the economy is still on its way to a perfect balance according to experts. Latest factory data and several survey data indicate an economy that is supposedly booming.
In the past few years, construction output has continued to struggle for upward momentum. The sector also forms a small part of the overall economy. This means that any building spree will make little to no difference in the overall economic growth. Presently, the sector is still well below pre-crisis peak.
Where are we going with this?
Many analyses have been made and positive forecasts have been put out. However, the stable construction sector (and all other smaller sectors like manufacturing) is not enough to steer the UK’s economy in the right direction.
Regardless of what analysts, Cameron and Osborne say, the UK is still a consumer driven economy. The services sector powers more than three-quarters of the UK economy. This means Britain is reliant on insurers, bankers, restaurants and hotels to drive output. UK growth is also being driven by consumer spending. There have been forecasts of falling consumer spending due to declines in overall output and income inequality but there is no sign we will see such forecasts come to fruition.
Why is the consumer driven economy a concern? Isn’t the services sector growth a positive?
The services sector growth is a positive but the concerns are well founded. Growing household confidence may be positive but the risk of a consumer driven economy is that any improvements in Government finances will be fuelled by rising household indebtedness. Personal loan debt can be avoided to an extent if consumers calculate how much they can reasonably borrow before taking out a loan. However, such a situation is neither sensible nor sustainable which is why a new economic recovery plan is vital.
Pay packets aren’t rising in line with cost of services. Therefore more Brits are dipping into their savings to fund purchases. This pattern needs to be tackled as it can’t continue indefinitely. If wages don’t improve, it will lead to a sharp downturn in consumer spending and more people will take on more credit than they can afford. This is why the UK needs to find new sources of growth urgently. One area that is expected to help stem the tide is manufacturing. Machinery, cars and drugs are top of the pile when considering biggest British exports. It is time to add more products to that list.