By Daniel Hunter
The UK needs to up its game on exports if it is to maintain the strong rebalancing of growth in the economy, CBI director-general John Cridland will say in a major economic speech today (Thursday).
And he will warn of the damage that measures such as the mandatory National Living Wage could have on UK employment.
Speaking at King’s College London to an audience of business leaders, senior economists, government officials and politicians, the CBI Director-General will outline how the UK economy is rebalancing.
He will say: “This recovery hasn’t been over-reliant on consumer spending and there has been some rebalancing of activity towards investment. We’ve seen rebalancing away from the public sector towards the private sector, away from unemployment towards employment, and we’ve also seen some rebalancing within the services sector itself.”
Mr Cridland will examine the reasons why exports and productivity growth have been slow, arguing that the latter is not a ‘puzzle’, as the nature of the financial crisis determined the pace of the recovery.
And he will highlight three significant rebalancing challenges: on exports, productivity and raising living standards. While welcoming the Government’s action on productivity, he will also suggest the Government needs to exercise caution on the National Living Wage. He will say: “I've talked to many CEOs who feel they may now have to make changes to their business models, which could result in fewer job and progression opportunities.”
Mr Cridland will add that a revision is needed to the Government’s productivity plan, to tackle the vocational education gap by reforming qualifications for 14-18 year olds, and highlight an omission – the importance to the UK’s economy of medium-sized businesses.
On the extent of economic re-balancing, Mr Cridland will say: “The UK has made progress in the last five years.
“A more balanced economy should not only grow faster over the medium-term, but should also produce more resilient growth.
“We’ve seen well-balanced domestic growth, with solid expansion in business investment – especially in ‘Intellectual Property’, like R&D and software.
“Business investment as a percentage of GDP has now risen above the previous peak in the early 2000s.
“We’ve also rebalanced from the public to the private sector. From 2009 to 2014, the number of people employed by the private sector rose by more than 2.5 million – easily offsetting a 900,000 reduction in public sector employment in the same period.
“And - of course - we’ve rebalanced from unemployment to employment.
“Whilst some commentators have been looking for a rebalance from the service sector to manufacturing, I believe this is no longer the right way to look at our economy.
“A transformation currently taking place within the sector is rendering the distinction between services and manufacturing less and less meaningful.
“I’m talking about two related trends. One is the outsourcing by manufacturing firms of a whole range of activities – design, programming, analytics, marketing, and so on.
“The other is the increasing tendency for manufacturers to develop and sell services themselves to gain a competitive advantage.
“Taking the wider impact of manufacturing into account, we estimate that the sector could account for 19% of the UK economy, double the share implied by national accounts.
“This interdependence between services and manufacturing can also be seen in the rebalancing within the services sector since 2009.
“Whilst the share of financial services and public administration has decreased, the share of non-financial services related to business has risen.”