Jobs bonanza for shops as industry takes a battering

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Diane Coyle

and Magnus Grimond

Clear evidence of the rapidly accelerating consumer boom has emerged in official figures showing that retailers have created almost as many jobs in the past 12 months as in the previous five years.

The statistics reinforce the findings of two new reports which show an increasingly diverging British economy, with the retail boom fast leaving behind a manufacturing economy hampered by the strong pound and declining export orders.

Industry's fears over the impact of sterling were underlined over the weekend when both Adair Turner, director-general of the Confederation of British Industry, and John Edmonds, head of the GMB union, called for action to cut the value of the pound.

Employment in retailing has risen by 93,000 during the latest 12 months for which the figures are available, according to the Office for National Statistics. This compares with a rise of 118,000 in the previous five year period.

In March, the level of employment in the sector stood at just under 2.4 million, compared with just over 4 million in all of manufacturing industry. Manufacturing employment has fallen by 410,000 since March 1991, while retail employment has increased by 211,000.

Official figures are not yet available for the latest quarter, but announcements from big retailers during recent months indicate that there has been no let-up in the pace of job creation. Most recently, Dixons announced plans to create 3,000 new jobs in the UK and Ireland in the next year. Marks & Spencer, one of the biggest retail employers, created 1,700 jobs in 1996 and plans a similar expansion this year. In one week in May alone, M&S, Storehouse and the pub chain Greenalls announced 5,000 new jobs.

The employment growth is explained by the fastest growth in the volume of retail sales since the late 1980s. Last week economists were taken aback by news of an unexpected surge in sales to 5.4 per cent, year on year.

Two new reports today emphasise the diverging fortunes of different parts of the economy. Oxford Economic Forecasting predicts that the consumer boom will go from strength to strength, bolstered by the windfalls of free shares from building societies converting to banks, by rising incomes and by falling unemployment.

This means that the service industries will drive the economy's growth, it says. It forecasts the output of the service sector will expand by 5.3 per cent this year.

Manufacturing output will grow by only 1.7 per cent, however, slowing even further next year and into 1999 as a result of the impact of the strong pound on exports. This will be enough to reduce the overall growth rate to 1.9 per cent in 1998, down from an expected 3.5 per cent this year, the report predicts.

This warning is supported by the Confederation of British Industry's latest survey of small and medium-sized enterprises (SMEs) today. The drop in export orders during the past four months was the biggest since April 1991, the survey reports.

The balance of SMEs reporting higher rather than lower overseas orders plummeted to minus 25 per cent from minus 8 per cent in the four months to April, and plus 2 per cent a year ago. There has been a sharp drop in optimism about export prospects, although overall confidence was unchanged.

Strong home demand meant total orders continued to expand, but at their slowest pace for a year. The businesses surveyed still expected output to increase during the next four months.

Tony Bonner, chairman of the CBI's SME council, said: "Our survey shows that small and medium enterprises have been hard hit by the strength of sterling."

The latest survey from the industry grouping comes hot on the heels of last week's quarterly poll of CBI members showing the worst slump in manufacturers' optimism about export prospects for nearly 17 years. Yesterday, Mr Turner said the high pound was having a major impact on exporters.

Commenting on the first Budget from the new Chancellor of the Exchequer, Gordon Brown, earlier this month, he said: "One thing the Chancellor could have done would have been to have a somewhat tighter budget on the consumer side three or four weeks ago."

Although he said the CBI was very cautious about Britain entering the single currency in 1999, he added: "Having said that, if one was focusing entirely on the tactics of bringing sterling down, one might talk about early entry. That might play a role in helping to talk down the pound."