Economic Review, February 2013
Abstract
This note draws together key economic stories from National Statistics produced over the latest month. This is in order to paint a coherent picture of the UK's economic performance using recent economic data.
Summary
Real GDP grew by 0.2% between 2011 and 2012, an upward revision from the previous estimate of zero growth as first estimates of income and expenditure components have been incorporated into the figures. Growth was led by domestic expenditure, despite only modest increases in household spending and in investment, but there was a powerful offsetting drag from net trade.
Output contracted by 0.3% between the third and fourth quarters of 2012, reflecting the ‘fall-back’ from the temporary Olympics boost in the earlier period, as well as high levels of maintenance on North Sea oil and gas installations. Meanwhile the labour market continued to strengthen, with employment increasing and unemployment and inactivity falling. Since the third quarter of 2011, output in the whole economy is broadly unchanged in size while employment has risen by 2.3%.
Growth in employment since 2000 has been proportionately strongest among the over 65 age group at the expense of other age groups, especially those aged 25-34. Over this period, there has been a significant shift in gender patterns of employment, with rising shares of part-time employment among men and full-time employment among women.
UK economy grew by 0.2% in 2012 as a whole...
The UK economy is estimated to have expanded by 0.2% between calendar years 2011 and 2012 according to the latest ONS estimates. This is above the previous estimate of zero growth as a result of incorporating initial estimates of some income and expenditure items. These suggest that both the income and expenditure measures of GDP grew somewhat faster in 2012 than the output measure which formed the basis of the previous growth figure. However the early estimates of income and expenditure are subject to revision and these data will become firmer over time as further information from survey and administrative data sources is received.
The output of the services sector has grown by 1% or more in each of the last three calendar years, contributing markedly to annual GDP growth in each year. However this was offset in 2012 by a 1.8% fall in manufacturing output and a drop in construction output of more than 8%. Both these sectors expanded in 2010 and 2011. Oil and gas output fell by over 10% in both 2011 and 2012.
Figure 1: Contributions to GDP growth by selected output components, in calendar years 2010, 2011 and 2012
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Growth in 2012 was led by rising domestic expenditure, principally households’ final consumption and general government. But this was offset by a deterioration in the UK’s net trade position in real terms, which reduced real GDP growth by 0.8 percentage points as export volumes fell while imports rose.
The composition of economic growth over the last three years has fluctuated. In 2010 and 2012, modest growth in domestic spending was countered by negative contributions from overseas trade. In 2011 the pattern was reversed, with a contraction in domestic spending (largely the result of high inflation) offset by a strong contribution from external trade.
Household consumption grew by 3-4% in nominal terms in both 2011 and 2012. But the profile of inflation – which was higher in 2011 on average than in 2012 – means that this translates into a fall in the volume of spending in 2011 followed by a rise in 2012.
Figure 2: Contributions to GDP growth by selected expenditure components, in calendar years 2010, 2011 and 2012
Notes:
- Other Domestic Spending includes NPISH, Change in Inventories and Acquisitions less disposals of valuables
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... but contracted by 0.3% in the final quarter
Output contracted by 0.3% between the third and fourth quarters of 2012 and was 3.0% lower than the pre-recession peak in the first quarter of 2008. Weakness during the quarter was influenced by the ‘fall back’ from the temporary strength in the previous quarter due to the London Olympics and Paralympics, and maintenance of North Sea oil rigs. Excluding oil and gas, the economy contracted by 0.1% in the final quarter of 2012 and was 0.6% larger than a year earlier
The impact of the Olympics in the third quarter is most evident in the output of services industries, which in aggregate saw growth of 1.2% in the third quarter - the strongest for five years. It is impossible to determine the overall impact of the Olympics with any precision. However ticket sales alone are estimated to have added 0.2 percentage points to GDP growth in the third quarter, with a corresponding fall in the fourth quarter, as shown in the ‘other services’ category shown in Figure 3. There is also a rise in the output of the accommodation and food services sub-sector which may in part be attributable to the Olympics.
Figure 3: Output of selected services industries (index numbers, 2010 Q1 = 100)
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Household expenditure increased by 0.2% in volume terms during the final quarter of 2012 according to the second estimate, the fifth successive quarterly increase, but it remains 3.6% lower than its pre-recession peak.
The muted spending of households is evident in the latest retail sales figures. In January, the volume of goods bought in the UK retail sector fell by 0.6%, the fourth consecutive monthly fall to a level 1.7% lower than in September 2012. The volume of retail sales bought remains broadly unchanged since 2008, when the UK entered recession. In the four years between 2008 and 2012, sales volumes have increased by just 1.5%, compared with growth of 8.7% in the period 2004 to 2008.
By value, retail sales have continued to rise steadily since 2009, up by 10% in January. However the value of sales has also been falling since September 2012, by 1.4% in total.
Changing demographic characteristics of the labour market
The labour market continued to strengthen in the final three months of 2012 despite the fall in GDP, with employment increasing and unemployment and inactivity both falling. Since the third quarter of 2011, output in the whole economy is broadly unchanged in size while employment has risen by 2.3%.
Over a longer time period, the impact of changing UK demography can be observed in the labour market. Recent decades have seen an ageing population as life expectancy has increased – bringing a longer retirement period for many people – as a result of lifestyle changes. This has increased the burden on the taxpayer by raising the dependency ratio of the non-working to the working population. An increasing number of retired people are in receipt of current pensions relative to the numbers in employment who generate a significant share of government tax revenues.
As Figure 5 indicates, those aged 50 and over now form a greater proportion of the total number of people in employment, accounting for 28.9% in October-December 2012, up from 23.9 in the three months to January 2000. The proportion of people in employment accounted for by younger age groups has fallen, partly due to more young people in full-time education.
Figure 5: Share of workforce by age group, 2000 and 2012 (per cent of total workforce)
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Between January-March 2000 and October-December 2012, the UK labour force (the economically active population) increased by 3.2 million, of which 518,000 were aged 65 and over. This represents almost a doubling in the numbers in this age category who are in employment.
Changing work patterns by gender
Given that the state pension age has increased and people expect to live longer, they may decide to work longer in order to increase the quality of their retired life and reduce pension uncertainty. As a result, traditional age boundaries and gender patterns in the workforce have adjusted.
Figure 6 shows full-time and part-time employment. The former dipped sharply during 2008 and 2009 as firms moved to more flexible working arrangements involving greater use of part-time working. As a result, the level of part-time working has, apart from a brief fall between mid-2010 and mid-2011, been on a generally upward trend throughout the period since 2006.
There have been significant changes in the division of part-time employment by gender. Between January-March 2000 and October-December 2012 male part-time employment increased by 734,000 a rise of more than 50%, and female part-time employment increased by 430,000 an increase of less than 10%. The long-term trend may reflect a change in culture, with men adopting a more flexible work pattern than in the past. However, since the recession, the majority of additional part-time jobs have been taken by men, perhaps suggesting an involuntary element in that men have been forced to take part-time work because they could not find full-time jobs.
The share of male part-time workers who cannot find a full-time job has been consistently higher than their female equivalents throughout the period since 2000 – see Figure 8. The proportion of people, both male and female, in this position fell between 2000 and 2004, but it has risen steadily since then, with males seeing an especially large rise during 2008 and 2009. For part-time female workers, the increase since 2008 has been more muted.
Figure 8: Percentage of Part-time workers that could not find a Full-time job
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Conversely women have taken a higher proportion of full-time jobs over the last decade or so. The number of full-time female workers has increased by 12.5% since January-March 2000 compared with 2.5% in full-time male workers over the period as a whole.
In October-December 2012, female workers accounted for 36.1% of all full-time employment, up from 34.0% in the three months to March 2000. By contrast the female share of part-time employment has fallen from 80.2% to 74.0% over the same period.
Background notes
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