An over-reliance on imported goods is holding back the UK’s prospects for economic recovery, according to a report published today by the business-backed Big Innovation Centre.
Consumer tastes have changed over the past decade and Britain failed to adapt, the research points out. For example, in 2009 UK consumers bought almost eight times the volume of consumer electronics products than in 1997, and more than twice as much clothing.
The top 15 fastest growing consumer products are all goods, a demand that rose by 62 per cent, but consumer demand for services grew far less at 17 per cent over the period; a surprising fact given the ongoing economic shift away from manufacturing and towards services.
Advances in technology are responsible for the rapid innovation and increasing productivity in certain growth markets. Revolutions in the way production is organised internationally have meant the cost of lower-tech goods such as clothing has fallen dramatically.
However, the rapid innovation and growth in demand doesn’t mean that consumers spend a larger share of their total income on them. In fact, it is in areas where prices have risen that consumers are spending more of their money.
Electricity and fuel costs more than doubled from 1997 to 2009; as a result, they took up a significantly larger share of consumer spending, despite growing by just nine per cent in volume terms.
This has affected the UK economy significantly. For rising demand of a product either domestic production or imports have to increase in order to satisfy demand. The UK, however, has experienced a trade deficit in manufactured goods, and a smaller trade surplus in services.
Consumer spending accounts for nearly two thirds of growth in the UK economy. With Britain being reliant on imports in both areas, the research calls on the government to help boost growth by increasing investment and support for emerging consumer markets and our most competitive export industries.
It argues that our future economic success depends on the UK becoming a world leader in emerging high growth consumer markets, such as mobile banking and personalised healthcare. Also, the UK needs to turn its strong service industries into mass export sectors, particularly for business services, design and online retail.
“The UK is weakest in many of the fastest growing, innovative consumer markets, leading to serious imbalances in trade and dampening economic growth,” said Spencer Thompson, report author from The Big Innovation Centre. We need to get much better at making the things that people want to buy, or we will continue storing up economic problems for the future.
To get ahead in the fast growing areas of tomorrow Britain needs to be quick to adopt breakthrough technologies, instead of trying to reverse the trend in already established markets, Mr Thompson suggested.
“The government must take this challenge more seriously. They can play a big role in helping new technologies become household products by working with businesses to address all of the barriers involved in disruptive change. Without better co-ordinated action, we are likely to repeat the mistakes of the pre-recession years.
The authors argue that Britain’s strongest industries could become mass exporters if the EU Services Directive were implemented, UK airport capacity were expanded and controls on highly-skilled migrants were eased. They urge the government to give greater export support to SMEs and identifies the need to build stronger links with emerging economies such as China and India.