COMMENT: On the face of it, the UK economy is up against three quite distinct sectoral headwinds.
Britain’s car showrooms and assembly plants are struggling with falling sales, and so too are many of its high street and shopping centre retailers and restaurants. Making matters seem still worse, the housing market is sclerotic. Overlay Brexit uncertainty and one might wonder how anyone could reason anything other than the UK economy heading for a hard landing.
The answer is simple enough; the weaknesses in new car and high street sales do not originate in a poor labour market. While UK-based car assemblers are suffering weak demand for vehicles with traditional combustion engines, they can foresee strong demand for those propelled by more environmentally acceptable forms of transmission. And to meet this nascent surge in demand, car-makers are investing.
Changing habits
In the context of job losses being seen at high street retailers, this is a continuation that one can trace back to the end of Woolworths, AllSports, BHS and Comet, each falling victim to changing spending patterns and tastes but not any decline in household spending. Far from it in fact – we are spending differently, not spending less.
From the data, it can be seen clearly how employment across traditional or old-style retailing has come under downwards pressure. It also shows, however, how there has been a more than compensating increase in those in work across distribution, transportation, logistical and other sectors which have benefited strongly from the “new normal” in how we consume – products increasingly coming to us.
It will prickle sensibilities but it is an inalienable truth that a large proportion of jobs across the UK are very much alike in what they require from those who are engaged in them, or need comparatively modest on-the-job reorientation to be performed adequately.
Although many will point to this as a weakness in our labour market, I would argue that it is actually what prevents particular sectoral shocks resulting in persistent (involuntary) unemployment.
The rise of e-commerce
The Office for National Statistics tracks the rise of internet sales as a proportion of all retail, as well as the staggering average annual growth rate in the value of internet sales. With the latter compounding at around 16%, the UK has seen the internet share double every four or so years.
A point I would make is that the near tenfold increase actually understates the true extent to which we have migrated from travelling to make our purchases to products being transported to us. I make this claim because we have not included the delivery of ready-made foods.
While this change in consumer behaviour might not be particularly welcomed by landlords providing premises to those engaged in “the old consumer model”, the data on employment reveals how those invested in real estate “delivering and catering” to new consumer norms have done rather well. What we have, then, is another example of having to see the story in its whole and not its part if one is to understand what is actually going on.
Pull of the cities
As new households are formed within the UK, we are finding that they are ever increasingly opting to settle close to urban centres. Consider the facts: between 2000 and 2015, the populations of many city and town centres across England – particularly in the North and the Midlands – more than doubled; this against a 10% rise in the overall population.
In terms of relative growth, Liverpool’s city centre population saw the sharpest increase, practically trebling from 9,100 to 25,600.
While London recorded a circa 20% rise in city centre living, it experienced the largest absolute increase at one third of a million residents. Although student growth played a part in this phenomenon, it was single graduate workers aged between 20 and 29 who were the standout growth group, trebling in number. Importantly, there is no doubt that since 2015 these trends have accelerated.
Distinct explanations
The reality is that, while what we are witnessing with our high street retailers, estate agents, car dealers and car plants might look like there is a common cause, there are in fact distinct explanations.
What the UK is seeing at its car forecourts, high streets and shopping centres isn’t down to recession, but rotation. And what is being witnessed in elements of its residential market can be explained by specific factors unrelated to those which would raise alarm that a general housing crisis is looming.
As for weakness in business investment, be in no doubt that once the issues with the UK’s exit from the EU are resolved – and they will be, albeit at the 11th hour – we will see being made the investment that businesses are keen to make but which they have delayed.
As much as the UK economy entered 2019 with what appeared to be worrying symptoms, it will end the year free of these, allowing us to welcome the arrival of 2020.
Savvas Savouri is chief economist and partner at Toscafund Asset Management
