Reasons for optimism
Andrew Sentance, PwC’s Senior Economic Adviser for the UK, talks to agendaNi about his optimistic assessment of the UK’s performance and the need to get commercial ideas out of universities and into the economy.
UK leads in G7 indicators
Andrew Sentance acknowledges that growth, in the current economic context, will not be as strong as it was before the financial crisis. However, by comparing western economies, he finds that the UK is “in a position where it can adapt to some of the challenges that we face.”
The UK’s position since the year 2000 is either middle-ranking or better performing than its counterparts. It has much better prospects that Spain, Italy and other southern European countries which face a much greater level of adjustment.
Asia is the growth engine of the global economy but, among the G7 economies, the UK experienced the fastest growth in GDP per head over the last 13 years.
Services are driving the UK recovery with services output now returning to pre-growth levels and contributing to the surprising rise in job numbers. Private sector employment has risen by 1,064,000 jobs (4.6 per cent) in the past two years. This growth is not limited to financial services but also includes business and professional services, education, tourism, IT and communications.
Manufacturing output, though, fell by 13 per cent in 2008-2009 and has undergone a net loss of 10 per cent over the period since then.
Price shocks are part of the ‘new normal’ economy and GDP growth has fallen below 2 per cent in each year since 2008: both of these trends are parallels with the unstable 1970s and early 1980s.
Although western economic growth is currently disappointing, he expects a “clearer and more sustained” growth dynamic to emerge, perhaps later in the decade. Businesses, policy-makers and investors therefore need strategies to manage and survive through the current period while building potential opportunities for the future.
Key policy message
Looking at the Assembly, Andrew Sentance notes that much of its agenda has been taken up by the security situation and the legacy of the past. With the political system becoming more stable, there should be a greater focus on wealth creation and creating the conditions for “particularly private sector growth.” The public sector is “obviously going to be more constrained.”
The Assembly needs to look at attracting inward investment, investing the infrastructure and making sure that young people “don’t drift into economic inactivity” as they come out of education and have the right skills for the workforce. Northern Ireland’s economic inactivity has historically been higher than the rest of the UK.
Universities as economic hubs
After a large expansion of third level education in the UK, Sentance sees universities as having an important role in improving productivity: “What’s very important is that the good stuff that happens in those universities is not just ‘locked up’ there and can flow out into the development of business ideas in the communities which those universities operate within.”
Longer term productivity performance is “what really matters” as productivity always fluctuates over the economic cycle, often in line with economic growth. In basic terms, it’s important to look at the factors that help businesses become productive e.g. providing the right infrastructure and ensuring that businesses are incentivised to invest in skills.
Sentence is a part-time professor of sustainable business at Warwick Business School. He thinks that academics are “too much incentivised just to generate academic papers” but not incentivised enough to “create commercial and business applications from the work that they do.”
Productivity growth has slowed across the western economies since the mid-2000s – another feature of the “new normal” and similar to the 1970s slowdown. That said, the UK’s medium-term productivity performance compares well within other G7 states; only Japan and the USA have performed better.
