Services close to 80% of UK economy

Britain’s service industry recorded its 12th consecutive quarter of growth on Thursday and now accounts for almost 80 per cent of the economy.

The Office for National Statistics underlined how services are at the heart of economic growth, registering a 2.8 per cent rise in January compared with the same month last year.

Services is now the only large sector to have exceeded its pre-recession size and is far larger than generally thought. Respondents to a recent ComRes poll for the Whitehouse consultancy thought services accounts for just 46 per cent of the economy.

The sector is also evolving. The UK’s reliance on financial services has dimmed, and the sector is 10 per cent smaller than it was before the financial crisis.

The gap has been filled by IT and professional services — ranging from law to architecture to management consulting — which have grown by 25 per cent.

Some companies are also changing the range of services they offer. Stephen Pollard, an electrical engineer by training, now runs a management consulting team at Arup. Instead of working on traditional engineering projects, he is focused on a question posed by Transport for London: if lorry drivers are able to make more eye contact with cyclists, would it reduce the number of road accidents?

Arup, the engineers behind the Sydney Opera House, now specialises in everything from advice on security to consulting for theatres.

Other growth areas include the vibrant creative industries, encompassing everything from computer games to musical shows.

Stian Westlake, policy director at Nesta, the innovation charity, said the sector has enormous potential. “As the world becomes richer, people want to be entertained,” he said.

Mark Logan, chief operating officer at Skyscanner, said his Edinburgh-based travel search site has a growing arm providing flight searches for other websites.

It is also starting to nibble at the corporate travel market with a new tool to streamline the process of work travel authorisations. “When the economy feels tight, people become more interested in bargains,” he said.

Andrew Sentance, a former policymaker at the Bank of England who now advises PwC, said that while George Osborne’s “march of the makers” in manufacturing has not become a reality, the economic recovery is “much better balanced than most people think”.

He pointed to the UK’s huge trade surplus on services: in the second half of last year the country exported more services than manufactured items for the first time.

After a series of weak survey data, Thursday’s better than expected official numbers have settled some nerves.

Alan Clarke, an economist at Scotiabank, said the numbers were a “relief” and “really encouraging news”, after the Markit/CIPS survey of purchasing managers hit a three-year low in February.

“The general sense is that consumer-facing services are doing well,” said Rain Newton-Smith, chief economist at the CBI employers’ group.