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Robert Peston has an interesting piece on his BBC blog, considering what the UK's GDP growth would look like if it was possible to extract what he calls the 'bad bits' - financial services and North Sea oil and gas extraction - both of which are in serious decline. He suggests that we have been too dependent on these two sectors, and that both are now in serious decline. In particular, that the global financial services industry is now protecting itself by becoming much more national and less internationally interconnected, so that the City - as the world's most open and global financial centre - has therefore suffered.
By looking at figures from the Treasury for Gross Value Added as a measure of economic output, and excluding energy extraction and use, and also financial and insurance activities, he has calculated that GVA would be only 0.7 of a percentage point below its 2008 peak - compared with the GDP figure which is 3% below. This is better than the equivalent figures from the Eurozone as a whole, and than most of the european countries - even Germany would be only slightly better at 0.9 of a percentage point. Which would suggest that our manufacturing and non-financial services are doing relatively well, and that the 'bad bits' are powerful headwinds acting as a brake on recovery.
He adds some comment as to the policy flexibility that the UK has to help it to achieve this - as he puts it, "a currency, sterling, that could and has fallen to reflect weak
conditions here, and a central bank able to price money and create money
to meet the UK's challenges." Perhaps this is data that we could use to add to evaluation in questions about monetary policy?
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