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Bloomberg wrote this week about UK trade:
High-earning British bankers, lawyers and consultants are now some of the workers most vulnerable to trade shocks, according to the Resolution Foundation.
In a report published Monday, the think tank said the declining importance of manufacturing and rise of export-oriented services mean the risks of international exposure have shifted from the factory floor to cities and offices.
Consultants!!!!1! The article is based on a new report by the Resolution Foundation’s Sophie Hale, which makes the argument that there exists “an antiquated, manufacturing-centric view of how trade affects the economy fails to account for how the more open British economy that we have today”.
As Alphaville readers well know, the most important distinct ~profession~ within British exports is probably consultancy, and Hale’s basic premise is that we should be prepared for the potential that a future trade shock hits sectors like that hard, rather than assuming that the victims of trade will eternally be things like factories and farms. Hale says the UK economy has become more exposed overall to trade shocks, and that:
Insulating people from such shocks can’t be done by redistributing between those who gain and those who lose – not least because those who gain might be in other countries, as was largely the case following the recent sharp rise in energy prices. This means we need a different discourse around trade – one that is honest about what higher levels of exposure imply for individuals and the country as a whole.
She doesn’t propose what such a different discourse — in which “if the consultants suffer, we all do” — could entail. Part of the issue, as we mentioned in our piece last month, is that a consulting-oriented industrial strategy seems extremely challenging. Maybe we could have a national “Hug A Consultant” day? Raise the speed limit for BMWs? PowerPoint subsidies?
In Bloomberg’s characterisation, something of such a shock already happened:
Trade figures last week underlined just how exposed these sectors are to downturns in foreign markets. Exports of services fell by £5.2 billion in the fourth quarter, with £4.3 billion of that decline coming from “other business services” — a category that includes consultants, accountants and lawyers.
Here’s a graph from the piece:
We have to be honest: we really, really don’t like that chart. Sure:
— it’s a lot less money
— money is money
But:
— These things surely have to be looked at relatively: a £4.3bn export drop is less significant in this category than in any of the others
— Trade data is, like most macroeconomic data, foul
— Is the monthly trade balance (x-axis) really that relevant?
We recreated the chart so the quarterly falls are in percentage terms instead, and it looks a bit less dramatic:
We also made this chart of quarterly Other Business Services exports on a rolling four-quarter basis, which is also arbitrary but at least should further smooth out quarters that are weird for reasons beyond seasonality:
Numerical fussiness aside, the chart also doesn’t yet really tell us what the title says it does. Bloomberg diagnoses “consulting woes”, pointing to Brexit as a possible factor and linking it to professional services cost-cutting.
But the other problem with Other Business Services is its very otherness. We really don’t know what we’re looking at yet. Sure, a bit more than a quarter of the category is probably management consulting, but the second-biggest is “services between affiliated companies” — and honestly, what is that? As things stand, pretty much every component of Other Business Services has consistently grown annually since records began in the late ’90s, and we know from the aggregated figures that the category expanded again last year:
When the next edition of the Office for National Statistics’ Pink Book — the UK’s balance of payments bible — comes out, we’ll get a clearer annual picture. But that won’t be until late October and won’t have a quarterly breakdown, so — under the current statistical reporting regime — we’ll never actually (as far as we can tell, @ us if we’ve been stupid) know what underpinned the Q4 2023 downturn. Or what caused the upticks in Q1 and Q3. Or caused Q2 to be pretty flat.
At this point, you’re possibly thinking “Get to the point, Alphaville”, which is completely fair enough. Two points:
— Writing about national statistics is its own justification.
— Let’s imagine the kind of trade shock Hale is describing did arrive — that UK consultancy exports collapse this quarter because of, say, AI. As things stand it would be well over a year before we know from a macro standpoint what had happened. That surely can’t be good for the discourse.
