Britain’s 'flat white economy' now 28% bigger than country's manufacturing sector

Britain’s “flat white economy” is now 28 per cent bigger than the country’s manufacturing sector, according to the Centre for Economics and Business Research.

The rise of digital and creative businesses that make up the flat white sector – a nod to the way start-ups save on property costs by working out of coffee shops – is so significant that it could now contribute the most to the country’s gross domestic product, said the centre.

“With digital technology permeating an ever-increasing share of economic activities, the boundaries between technology and non-technology sectors are starting to blur,” said Douglas McWilliams, deputy chairman of the centre, who first coined the term in his book The Flat White Economy, which was published in March 2016.

"On some definitions the flat white economy could now be most of GDP.”

Mr McWilliams’ observations on the technology-enabled sector particularly refer to the types of businesses clustered around the “Silicon Roundabout” in east London.

These include computer programming companies and those specialising in creative disciplines such as arts and entertainment, advertising, market research, telecoms and scientific research and development.

When he first published the book five years ago, Mr McWilliams surmised that digital and creative businesses were as important to the UK economy as the technology sector.

“My second point was that the critical factor driving the growth of the sector was migration. Skilled young people come to the UK for fun as well as jobs and end up stimulating the creativity of everyone else working with them,” said Mr McWilliams.

Since then, the sector’s share of the UK economy has continued to rise.

“On our traditional, industry-based definition, the sector rose from about 10.5 per cent of GDP in the first half of the decade to 12 per cent in early 2020,” said Mr McWilliams.

“Meanwhile manufacturing has fallen from about level pegging with the flat white economy to about 9 per cent of GDP over the same period.”

Mr McWilliams said that not all sectors using technology were included in its definition, with FinTech excluded because it is still considered a part of finance.

“But it doesn’t look silly to think that about 15 per cent of UK GDP currently is heavily based on technology,” he said.

However, he said the Covid-19 pandemic had struck at the heart of this economy by reducing the incentive to move to cities.

To help the sector grow further, Mr McWilliams said it would need a more user-friendly immigration policy to help attract talent.

“The health of the flat white economy is critical for jobs growth and for the GDP growth that generates tax receipts,” he said.

“Without it we would be in a mess.”