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122: UK trends in services and manufacturing - how can I benefit?

03-11-2007 team


The objective of this special report is to give you our view on which areas you might want to avoid investing in because of an area’ s exposure to certain sectors within the UK economy, and what area should benefit from being exposed to the more economically dynamic sectors. This should help you increase the value of your investment portfolio – through capital appreciation and healthy yields. The same principles tend to apply to all developed western economies – e.g. USA, France, Spain and Benelux.


1. Manufacturing: Manufacturing in the UK has done remarkably well in the last year or so, to pull itself out of recession. This is in large part because of global trade – with global GDP running at 4.4%, more  manufactured goods are required from all countries, the UK included. The US and European mainland economies have kept demand high. However, if and when the global economy slows down, it is likely UK manufacturing will head off into another recession. For property investors, it’s important to reduce investment risk by avoiding areas which you might believe will suffer economically in the future. Hence, it’s probably best to avoid areas with high exposure to manufacturing in the UK such as Birmingham, Coventry, Nottingham and possibly Liverpool, Derby and Sunderland. More manufacturing will move overseas as labour and tax costs in the UK are relatively high and keep rising – a good example is how MG production has moved to China.   

2. Public Sector: The days of 5-10% UK public sector jobs growth per year are over. The UK runs with a balance of payments deficit and tax takes have risen dramatically in the last ten years. It’s likely as public finances are squeezed, jobs losses will occur in the public sector – an end to the growth spurt. It’s therefore best to reduce property investment risk by avoiding areas with a high percentage of public sector jobs. Northern and many Welsh and Scottish towns and cities have a higher proportion of public sector jobs than towns and cities in the south of England. The Newcastle area has 53% of it’s working population employed in the public sector – this is more than Romanian during the “Cold War”. If you cannot see how any public sector jobs losses would be mopped up by privates services jobs if job losses started – it’s probably best to avoid these areas.     


3. Energy sector: Having your property investment portfolio exposed to the energy sector is also worth considering. Energy costs will likely rise further and this provides a good hedge – or protection – in case energy prices rise out of control. The UK centres for energy are London (oil/gas HQs and trading) and Aberdeen (oil technical services and operations centre). The UK North Sea oil and gas production is going into decline, but Aberdeen has a huge workforce which will be re-deployed onto global projects. BP is opening a huge new office near the airport and the demand for property from corporate lets will stay very strong as long as the oil price stays over 50$/bbl. Carbon trading, global warming funds and other renewables and energy technology companies tend to be located in London and surrounding areas – these new global business will likely expand, though their overall impact on the London economy will not be large for some time. Nuclear is another potential growth area, but this is unlikely to create many long term jobs and any construction would likely start in 10 years time, and have a neutral impact on surrounding property prices – the plants are generally in remote areas (positive impact on jobs, negative impact on an area’s environmental attraction).   



4. Services sector: This is where the jobs growth in the UK will almost certainly come from in future years, unless there is a massive banking/services downturn caused by something like a stock market crash. Areas particularly well exposed to wealth from banking and services are all southern and south-western areas, towns and cities – with the focus being on London. Other smaller services centres are Edinburgh, Leeds, Manchester and Cardiff. Other services jobs that will likely boom are jobs in:

·          Tourism – southern England coastal areas – as well as historic cities such as York, Winchester, Harrogate, Bath 

·          Transport and logistics – Heathrow, Stansted, Kettering, Southampton, Felixstow, Bristol, Tilbury   

·          Banking – London City, Docklands, West End – also Leeds city centre, Manchester city centre, and possibly Liverpool city centre


Summary: has analysed these economic trends and conclude that the lowest risk areas for purchase of residential property for the longer term are in London and the South of England. London ranks high on all these economic criteria – high exposure to banking, services and energy employment, and low exposure to public sector and manufacturing employment. Southern coastal areas also rank high – particularly those within long commuting range of London and exposure to tourism and transport (Southampton, Portsmouth, Brighton and Bournmouth spring to mind). Additional benefits will come from areas in London and southern England which will benefit from major infrastructure investments –e.g. Olympics (London, Weymouth), Eurostar rail lines (Stratford, Gravesend/Northfleet, Kings Cross) and Airports (Heathrow, Stansted). One area that ranks high with all criteria – as well as re-generation - is the area between London City, Docklands, Kings Cross, Stratford and Woolwich (examples include Bow, Shoreditch, Hackney Wick, Silvertown). Higher priced areas such as the West End will also benefit from the huge capital flows coming in and out of London from global business – and the many foreign billionaires who choose London as their home (e.g. Chelsea, Belgravia, Mayfair, Kensington). Another longer term consideration is global warming - southern England could find pleasantly rising temperatures – some experts think the weather could be similar to the current climate in the south of France by 2050+. So people will have less reason to fly to Spain – it might even reduce emissions in the process…






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