Region and Cityforecast
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UK region and city economic forecast

Rebalancing the UK economy: time to seize the opportunity

The 2016 region and city economic forecast analyses the UK's current GVA performance post the EU referendum. Mark Gregory, EY’s Chief Economist, provides insight into which areas of the UK are performing well and how 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 no area of the UK will be immune.

Explore the UK regions and cities

Navigate the map to find out more about each UK region's GVA growth

Navigate the map to find out more about each UK region
{{countries["#uk-map-app_north-east"].label}}100{{countries["#uk-map-app_north-east"].global.value}}{{countries["#uk-map-app_scotland"].label}}1000{{countries["#uk-map-app_scotland"].global.value}}{{countries["#uk-map-app_yorkshire"].label}}999{{countries["#uk-map-app_yorkshire"].global.value}}{{countries["#uk-map-app_east-of-england"].label}} 56{{countries["#uk-map-app_east-of-england"].global.value}}{{countries["#uk-mapp-app_east-midlands"].label}}52{{countries["#uk-mapp-app_east-midlands"].global.value}}{{countries["#uk-map-app_north-west"].label}}157{{countries["#uk-map-app_north-west"].global.value}}{{countries["#uk-map-app_west-midlands"].label}}1{{countries["#uk-map-app_west-midlands"].global.value}}{{countries["#uk-map-app_wales"].label}}986{{countries["#uk-map-app_wales"].global.value}}{{countries["#uk-map-app_south-est"].label}}47{{countries["#uk-map-app_south-est"].global.value}}{{countries["#uk-map-app_london"].label}} 12{{countries["#uk-map-app_london"].global.value}}{{countries["#uk-map-app_south-west"].label}}597{{countries["#uk-map-app_south-west"].global.value}}{{countries["#uk-map-app_northern-ireland"].label}}12{{countries["#uk-map-app_northern-ireland"].global.value}}
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We expect that London and the South East will continue to outperform all other UK regions through to 2019, with growth averaging 1.9% compared to UK average annual GVA growth of 1.5%. This growth will significantly be below London and the South East average annual growth of 3.4% and 2.7% respectively between 2013 and 2015.

Source EY ITEM Club
North West
Employment 7 Youth unemployment
Consumer spend
Sector size etc
ITEM Club Data
Sheffield City Region Combined Authority
Perth & Kinross

Rebalancing is more important than ever...

As both EY ITEM Club and the OBR’s most recent UK forecasts make clear, the UK economy is entering a challenging period as we prepare to make a success of leaving the EU. This means that the case for driving geographic rebalancing to maximise the potential of all the UK’s regions and cities, moving the country to a higher sustainable rate of economic growth, is stronger than ever. Brexit makes this policy even more important both to maximise growth but also to support the UK’s transformation to be in a position to prosper after Brexit.

...but the pace of change is not increasing...

As both EY ITEM Club In this context, we believe our economic forecasts for the UK’s regions and cities provide a lot of food for thought — not least for government policymakers seeking to stimulate a faster and more balanced pattern of growth across the UK, and for local, regional and city authorities seeking to claim their fair share of that growth.

Our projection is that with some notable exceptions, primarily among the major northern cities, the North-South divide is set to widen slightly over the next three years. The potential of targeted initiatives is clear but at the current pace, the drive for rebalancing will take years to have a noticeable impact. In the meantime, other policy initiatives, such as reduction in welfare allowances, will potentially drive the economy in the other direction.

...time for a new push...

The Government has made clear that is believes the UK needs an industrial strategy. We see this as an extremely positive development. It is also opportune, the world economy is changing and the UK has a once in a generation opportunity to reposition itself in a world of changing trade dynamics and technology led disruption. At its core, the industrial strategy must articulate a vision for the linkages between priority sectors and the UK’s regions and cities. This will provide the basis for prioritising the policy initiatives required to create faster economic growth.

Key sectors in this context

This report has demonstrated how sectors are a key driver of economic outcomes and hence how the existing sector mix of a geographic area has a significant impact on short to medium-term economic performance. Our analysis of the sector outlook and the make-up of local economies across the UK has allowed us to identify the priority sectors to drive UK growth and geographic rebalancing. The key sectors in this context are:

  • Manufacturing remains a key element of the economy of many regions and cities of the UK

Manufacturing remains a key element of the economy of many regions and cities of the UK, especially outside of the South East — the resurgence in the Midlands shows what is possible. Our report on reshoring manufacturing demonstrated that the UK has a once in a generation chance to capture share in selected industries as the world economy changes. Automotive is an industry with opportunities in electric vehicles and autonomous driving but other capital intensive industries such as machinery, electronics, food and drink and chemicals all offer opportunity to boost exports and to substitute imports, something that is more urgent following the fall in the value of sterling.

  • Technology will be a key component of UK growth

It is clear that technology will be a key component of UK growth both within the information and communication sectors but also more broadly across other sectors of the economy. Support for the digital sectors to include robotics, Fintech, analytics and 3D printing is essential.

  • UK leading in pharmaceuticals, biotechnology and cleantech:

The UK has been the leader in Europe in attracting FDI in knowledge industries such as pharmaceuticals, biotechnology and cleantech. Any negative impact on the UK’s attractiveness of Brexit has to be compensated for by policy change to ensure the UK continues to have the opportunity to build on its strength in these sectors.

Key Components of Policy

In an unpredictable and increasingly competitive global economy, guiding the UK towards more balanced growth will not be easy. Devolution is a clear step in the right direction but enabling the regions alone will not be sufficient. Other elements of national policy must be designed to complement the industrial and regional strategy. The key components of this policy will be:

1. A trade strategy

A trade strategy which links all the elements of UK trade in the context of the industrial strategy. The UK’s post-Brexit trade deals must guarantee access to the right markets for the right products and enable imports to the UK.

2. A commitment to deliver infrastructure

A commitment to deliver infrastructure that has to go beyond the welcome first steps in the Autumn Statement. A cross-country rail and road network fit for purpose in the North and Midlands are essential requirements. Broadband and mobile access also needs to be upgraded to ensure all parts of the country are connected so that people can participate fully in the economy.

3. Investment in the skills

Investment in the skills required to build a successful modern economy that is competing on the world stage. Digital skills will be a key part of this but so will the communications and interpersonal skills that employers value so highly.

4. The appropriate policy and incentive regime

The appropriate policy and incentive regime to allow the UK to reposition itself in existing markets and to create a platform for growth in new sectors. Incentives for investment in R&D, tax and business rate schemes that incentivise capital investment and competitive profit taxes are all necessary components of positioning for a successful economy post-Brexit.


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EY - Mark Gregory

Mark Gregory

EY Chief Economist