The UK service sector as a key driver for economic growth

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The UK service sector as a key driver for economic growth

There is no denying the fact that the United Kingdom of Great Britain and Northern Ireland is one of the world's leading industrialized nations. Nowadays the economy of the United Kingdom is the fifth-largest national economy in the world. A growing service sector is a sign of increased living standards. Service sector is an indicator of social development. It has always attracted much attention of the researchers. The knowledge of its composition and value is important for an understanding of development of the economy, political and social issues. The purpose of this article is to study the composition of the UK tertiary sector, its level of development and its impact on employment growth. The main objectives are to search, process and analyze statistical data, to collect the necessary information and to compare the share of the UK tertiary sector indices for several time periods.

First it is worth saying that the economic history of the United Kingdom deals with the economic history of England and Great Britain from 1500 to the early 21st century. In the early Middle Ages most people were employed in the primary sector. Many people worked on the land and made their living from agriculture and related products. During the industrial revolution, more people were needed to build ships, work in steel making and with textiles. All of these jobs are found in the secondary sector. By 1900 over half of the workers in the UK were employed in secondary industries. Britain has long had a great success in the industry. But mechanisation changed the situation. It meant that less people were required to work on the land and in industry, as machines could carry out most of the work that people previously did. At the end of the Victorian era, the service sector (banking, insurance and shipping, for example) began to gain prominence at the expense of manufacturing. The UK experienced rapid growth of the service sector in the late 19th century. Employment in the service sector outnumbered that in primary and secondary sectors [1]. For the last 100 years, there has been a substantial shift from the primary and secondary sectors to the tertiary sector. This shift is called tertiarisation. Economies tend to follow a developmental progression that takes them from a heavy reliance on agriculture and mining, toward the development of manufacturing (e.g. automobiles, textiles, shipbuilding, steel) and finally toward a more service-based structure. The United Kingdom was the first economy to follow this path in the modern world [2].

What is the service sector? Let`s investigate this term. There are numerous definitions of service sector. They all have more similarities than differences. Service sector can be defined as «the set of industries that provide services to the population, the scope of services made to include culture, education, health, consumer services, passenger transport and communication, recreation facilities, catering» [3]. «The service sector is the part of a country's economy that is made up of businesses that provide services» [4].

Currently in the UK services sector is the largest component of the economy. Now the percentage of employment in the services sector in the UK has reached 80 [5]. In the UK, the main scope of services includes:

• Retail industry

• Computer and I.T. services

• Hotels and tourism services

• Restaurants and cafes

• Transport - rail, bus, air, sea

• Communication

• Banking services

• Insurance services

• Pension services

• Food and beverage services

• Postal services

The services sector is the real powerhouse of the UK economy, accounting for almost 80 per cent of GDP. In 2015 the UK tertiary output was 2.248 billion USD [6]. The major share (about 40%) belongs to business and financial services. The share of public services is 35%, trade 19%. Hotel services occupy 5% of the entire market [7].

Graph 1 Graph 2

The first graph shows that in UK's economy in the period from 2006 to 2016 services suffered in the downturn like the rest of the economy but on official measures the sector had regained its previous peak by the end of 2011, well ahead of the rest of the economy. It continues to expand at a healthy rate.

The second graph represents that the closely watched survey of purchasing managers fell sharply in the aftermath of the vote to leave the EU but has since recovered.

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Graph 3

The third graph shows the current balance of goods and services in the UK. While the service sector continues to deliver a healthy return, with exports far exceeding imports, the picture is the reverse for goods, dragging down the UK's trading position with the rest of the world [8].

The main scope of the UK economy is its business, financial and other services in England that are successfully exported, bringing a huge profit.

Britain provides 10% of world exports of services - banking, insurance, brokerage, advisory, as well as in the field of computer programming.

The main share of British exports of services in 2012 accounted for the business (29%), financial (24%), travel (12%) and transport (11%) services.

UK economic growth has slowed over the last year. While services have continued to expand robustly, construction and manufacturing have struggled. Official data for the first three months since the EU referendum suggest a similar pattern continued, with the service sector driving growth, while industrial production, construction and agriculture all shrank [8].

The study of the tertiary sector found some concerns. One of them deals with the characteristic of services. They are intangible. It means that potential customers don`t know what they will receive and what value it will hold for them.

The next problem is that the quality of most services depends largely on the quality of the individuals providing the services. Whereas a manufacturer may use technology, simplification, and other techniques to lower the cost of goods sold, the service provider often has high costs of services.

Product differentiation is often difficult. Customers face obstacles choosing a service provider. They often seem to provide identical services.

The services are fluctuating in nature. They may depend on the season for example (tourism).

A huge potential problem of the service sector is that often it is hard to export the service sector industries. A country with a large service sector may run a current account deficit - importing manufacturing goods and financing the deficit through attracting capital flows. This has often been the case for the UK. However, there is no guarantee that a growing service sector will lead to a current account deficit. Increased globalization has also enabled more services to be traded, for example, cross border I.T. support is much easier with the internet [9].

It is worth saying that the UK economy is based on tertiarisation. Therefore any economic crisis is a potential threat for its services sector.

The results of this investigation show that the degree of development of the tertiary sector of the economy often acts as an indicator of the level of economic development of the country.

The following conclusions can be drawn from the present study:

• The UK tertiary sector plays a huge role in the economy of the state and society as a whole. The level of development of the tertiary sector often acts as an indicator of the level of economic development of the country.

• More than two-thirds of the UK population are employed in the service sector.

• The UK services sector accounts for almost 80 per cent of GDP.

• The UK was the first country that went on tertiarisation way.

• Tertiarisation has both advantages and disadvantages.

• It includes all kinds of commercial services required to meet the material and spiritual needs. It is impossible to imagine a modern economy without service sector.

References

service sector employment release

1. James Denman; Paul McDonald (1996). «Unemployment statistics from 1881 to the present day». Labour Market Trends. The Government Statistical Office. 104 (15-18).

2. https://en.wikipedia.org/wiki/Tertiary_sector_of_the_economy

3. Raizberg BA, LS Lozovsky, EB Starodubtsev. Modern Dictionary of Economics. - 2nd ed. M.: INFRA-M. 479 to 1999.

4. http://dictionary.cambridge.org/dictionary/english/service-sector? fallbackFrom=englishrussian.

5. The Financial Times Limited 2016 https://www.ft.com/content/2ce78f36-ed2e-11e5-888e-2eadd5fbc4a4

6. Савлов М.Е. Формирование отраслевой структуры третичного сектора хозяйства стран мира. / Автореф. дис. … канд. филол. наук. - Москва, 2016.

7. https://www.gov.uk/government/publications/summer-budget-2015/summer-budget-2015

8. https://ig.ft.com/sites/numbers/economies/uk

9. http://www.economicshelp.org/tertiary-service-sector/

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