SW economic growth slows until 2019

None of the UK’s regions or cities will be immune to slower economic growth over the next three years, with the South West expected to slow down to 1.3% in the period 2017-2019, according to EY’s UK Region and City economic forecast.

However, Bristol’s growth is set to outperform the region as the city’s GVA grows from 0.3% in 2016 to 1.6% annually over the next three years – just ahead of the UK average growth until 2019 of 1.5%.

Employment across the South West has grown 0.9% in 2016, with the fastest employment growth coming from public administration (0.6%), transport & storage (0.2%) and health & social work (0.2%) sectors.

Richard Jones, EY’s senior partner in the South West comments: “This is our first region and city forecast since the EU referendum and the South West has suffered from lower than average economic performance up until now, even with Bristol’s strong performance. Looking ahead, no area of the UK will be immune to the economic downgrades we expect to see leading up to 2019 and the South West will continue to see the impact of this with lower GVA and employment growth.

“This report shows just how much the outlook has changed across the UK’s regions and cities since this time last year, but Brexit isn’t the only factor at play. The combination of low inflation and rising employment and average earnings that made 2015 a bumper year for UK consumer spending is fading fast and next year is set to be much tougher for consumers.”

Regional disparities highlight need for economic rebalancing
The regions reporting the largest slowdown in GVA growth are London and the East Midlands over the 2017 to 2019 period when compared to the previous three years. London’s growth is expected to dip from 3.9% (2013-16 growth) to 1.9% (2017-19) and the East Midlands from 2.1% to 1.2% respectively.

However, in London, the capital’s strengths means that it is still expected to be the joint fastest growing region of the UK, along with the South East, each with GVA of 1.9% over the next three years. This compares with overall UK GVA of 1.5% during the same period until 2019.

The slowest regional growth levels are expected in the North East (0.7%), Scotland and Wales at 1.0% GVA respectively over the next three years. The North East has experienced employment losses in the accommodation, food, health and social work sectors, whilst Scotland’s economy continues to be impacted by North Sea activity and the falling oil price. In Wales, the heavy reliance on the public sector is cited as a potential source of vulnerability.

Richard Jones continues: “Although we can see pockets of growth across the UK’s regions and cities, little progress is likely to be made on economic rebalancing over the next three years and, in a slower growing economy, closing the gap will become even harder. Devolution is a clear step in the right direction but enabling the regions alone will not be enough. National policy must be designed to complement regional policy through targeted initiatives to support trade, deliver infrastructure, invest in skills and support growth in key sectors.”

UK cities: More complex than a North – South divide
According to the report, cities in southern England are set to continue outperforming those in the rest of the UK. Reading tops the growth league for both GVA and employment, with average annual rises of 2.5% and 0.9% until 2019. As the UK’s fastest growing sector, digital accounts for 25% of Reading’s GVA, and this together with growth in key sectors such as ‘professional, scientific and technical’ and ‘administration and support services contributes to its strong performance.

Northern English cities mostly do less well. Newcastle, Liverpool and Hull all face a challenging outlook, with GVA of 0.8%, 1.1% and 1.0% respectively over the next three years until 2019.

At first sight, EY’s forecast might appear to confirm that the UK’s cities and regions are set to fit in with a general widening of the North-South divide. However, EY says the reality is more complex with Leeds and Manchester not conforming to the general pattern. The forecast says that Manchester will experience the second fastest employment growth of all the cities that EY’s forecast covers – 0.7% a year over the 2017-2019 period – and will achieve GVA growth of 2.0% over the same period. Leeds too is also expected to outpace the performance of Yorkshire and the wider UK with GVA of 1.7% annually and achieving jobs growth of 0.3% a year.

Richard explains: “Manchester and Leeds show how targeted initiatives can drive superior growth and clearly illustrate the opportunity geographic rebalancing presents. However, success requires a strategy that is based around priority sectors and integrated with region and city growth plans – the challenge is to develop and implement the right mix of policies to drive economic growth locally.”

Sectors are key drivers of local economic performance
EY’s analysis says that the expected GVA growth of Reading (2.5%), Cambridge (1.8%) and several other southern cities illustrates the importance of sectors in determining economic performance. EY’s report forecasts that the GVA of information and communications, and professional services will grow by 11% and 10% respectively over the next three years. By contrast, manufacturing will only grow by 2% over the same period.

Concluding Richard added: “The changing UK landscape means that it is even more important to continue to monitor economic developments at the region and city levels and to include the potential implications of emerging economic, industrial and trade policy for all parts of the UK, including the South West.

“The Autumn Statement confirmed the thrust of policy is to reshape the economy in parallel with ensuring Brexit over the next few years. The design of the industrial strategy, the impact of moves to create fairer economic outcomes, including the approach to public expenditure and taxation, will be the key drivers of future economic performance at the region and city level.”