BU's emeritus Professor Nigel Jump speaks to us as his blog turns 50 to look back and look forward on what is next for Dorset's economy.
Fifty & Counting
This is a milestone for this Dorset Economy series – the 50th blog. Since mid-2020, we have explained economic news and events, and discussed the outlook for Dorset and its hinterland economy based on a foundation of orthodox economic reasoning and experience.
Aimed at BU’s business and other partners in Southern England, these blogs have covered a range of shocks to economic activity, from pandemic and recession to stagflation and broad regional development. In a period of turbulence and uncertainty, there have been some common themes, some good forecasts, and possibly some dodgy ones.
To acknowledge the 50th issue, the following questions were put to me by BU colleagues. My answers summarise the “state of the economy” at the end of 2023.
Soon in the New Year, I will offer a parable to emphasise the essential messages of the series to date. Meanwhile, thank you to BU and all who have been reading. A wealthy and healthy new year to you all.
Questions & Answers
Looking back from your first blog in mid-2020, to now, what has changed in Dorset’s economy?
In some ways, the local economy has undergone a paradigm shift in the last 3.5 years. Leaving the EU, enduring a pandemic and experiencing a period of ‘stagflation’ – low growth with high prices – Dorset businesses and workers have had to adapt to new structures and relationships in trade and exchange, hiring and firing, and across supply chains.
Consumers have changed buying patterns to the detriment of some aspects of retail and other services.
Employees have changed working patterns with more working from home and some withdrawing from the labour market altogether.
Companies have changed with less emphasis on globalisation and more emphasis on national or local resilience.
Some sectors have benefited from these behavioural shifts, bouncing back well from the enforced Covid Recession. Others have fallen away as their profitability and cost structures have been damaged by different demand and supply factors.
Have things gone how you have expected or have there been some surprises along the way?
Largely as expected. The period of modest growth and higher inflation and interest rates was predicted. The decline in foreign direct and weak domestic investment was expected, as were the mounting debt problems for government, firms, and householders. One surprise was how the labour market held up better than expected and how dropping back into recession has, so far, been avoided. Putin’s war in Ukraine was clearly an unexpected shock to energy costs and other trades. Frankly, it is surprising that economic activity has not been more affected negatively by these events. We are not out of these woods yet.
What do you think the key issue facing Dorset’s economy is at the moment, and what can businesses learn from this?
The key issue remains the lack of productivity – its poor level and its lack of growth. The UK has slipped down the league table of productive capacity, its potential growth remains sluggish, and its productivity drivers remain weak compared with our competitors and our own past. Clearly, some firms or industries are thriving but, overall, we face a continuation of weak demand and difficult supply conditions. Indeed, recent ONS data said that only 10% of companies account for 63% of UK output per hour and productivity growth was a meagre 0.6% per annum from 2011-22. No wonder many feel worse off.
Businesses will need to learn or continue to cope with further restraints in many markets, including higher interest rates than we saw in the decade or so after the financial crisis of 2008. They cannot expect strong support from the ‘state’, saddled as it is with high debts and deficits. They must be prepared for more awkward access to markets as well as profound changes from AI technology and climate change. It is important that business plans for a world where the promotion and pursuit of value may be changing compared with from previous historical ‘norms’.
Repeatedly, these blogs have covered aspects of the basic route to combating ‘stagflation’. The mantra remains: raised productivity is the path to better output, profits, and earnings and, thereby, higher living standards. This means more emphasis on investment, especially on infrastructure, technology, and innovation, as well as on skills and entrepreneurship in the workforce, leading to enhanced competitiveness in local, national, and overseas markets.
As you’ve been looking at Dorset’s economy over the long term, what do you think the trajectory might tell us about the future?
Dorset’s economy has its own characteristics - strengths and weaknesses - but is not really that different from other UK areas. Notably, it has strengths in a few key sectors, including high tech engineering, hospitality and aspects of consumer products, financial services, and environment. The last few years, however, have showed how vulnerable many of these and other industries can be to relatively sudden changes in trade and investment patterns.
The road we are currently on carries high risk and uncertainty, regarding underlying growth capacity and potential. Official forecasts predict a weak trajectory for the rest of this decade. To make that view too pessimistic will require deep, long-term, collaboration and knowledge exchange between private and public operators at many levels. The details of economic progress change over time, but the fundamentals of relative success do not: create value, be productive, and grow. Identifying opportunity and discarding bad practice are vital to recognising transformation of values and productivity. Here’s wishing for a more sustained, sustainable and stable outlook for the years ahead.
