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Is it the financial sector?

A commenter, ‘david’, says

If you want to contend that there was a real shock, identifying one is not difficult: the economy of the City is heavily involved in finance.

So, if this is right, we’d expect London to be worse affected by the rest of the country, and finance to be especially badly affected. But this does not appear to be the case, based on the ONS’ “Gross Value Added at current basic prices” stats at a regional and industry level (I used the ‘workplace-based’ figures):

Now, Andrew Haldane thinks measuring GVA in the financial sector is problematic. Maybe the data is all wrong. Here’s contributions to GDP growth for 2006-10:

What this seems to suggest was that ‘Business services & finance’ was *incredibly* important to UK growth before 2008, but the reduction in the GDP was slightly more shared around. Here’s the growth in output year-on-year by those sectors:

There are lots of things one could say here. Construction is obviously important. Extraction is not surprising (think ever falling North Sea oil production). But I look at this and see stagnation in manufacturing, utilities, agriculture and (yes) government/other since well before the recession and these sectors took proportionally larger hits in 2009. I think there may be a bigger story, here.

And if I can find a better breakdown for ‘business services and finance’, that may shed a lot of light. But that’s enough from me, for now.


[Update: I added in some missing labels from the first GVA chart. The ever so slight discrepancy between the London total between the two graphs is because the first is ‘Headline’ GVA and the other is just ‘GVA’. In the notes to the stats, it says “The headline regional GVA series for this publication have been calculated using a five-period moving average.”]

Categories: Economics
  1. david
    April 30, 2012 at 5:01 am

    Wasn’t the original question “why is there still stagnation” rather than “was there an across-the-board AD shock in 2009”, though.

    I named finance because as a multi-decade sort of trend, finance (and education/health) were the industries absorbing people as manufacturing shed people – presumably not the same people, rather a kind of sideways shift along assorted service industries. Education/health are always kind of rigid, so that left finance. Shocks that originate in one industry can make themselves felt elsewhere via (real?) demand, income effects, etc. mechanisms, and there’s got to be at least a little of that in there, otherwise the crazy oscillation in Construction is impossible to explain.

    • david
      April 30, 2012 at 5:13 am

      Tried looking at expenditures too but nothing obvious there either. Ah well.

    • April 30, 2012 at 5:45 pm


      You’re right, I have slightly shifted the question as my own understanding has evolved. Looking at CPI exc. indirect taxes relocates the puzzle of how to explain UK-US discrepancy from now to 2009.

      • Alex
        May 1, 2012 at 1:01 am

        Could the discrepancy be explained by the £’s devaluation vs $’s exchange rate being affected by decisions made by the Chinese Communist party?

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