- Core cities will continue to outperform with Gross Value Added (GVA) expected to grow 2.2% annually on average, compared to growth of 1.6% for towns. Large city employment will grow twice as fast than in towns
- Towns in the North East, Yorkshire and the Humber and the West Midlands forecast to be the slowest growing groups in England, growing at little more than half the rate of towns in the South East and the East of England
- London, South East and the East of England forecast to be England’s fastest growing regions
- EY report calls for “levelling up” to be front and centre of policy-making, with five key recommendations
LONDON, Tuesday 25th February 2020: The UK economy is expected to strengthen over the coming months but the geographic imbalances between the North and South of England will widen between 2020 and 2023 unless a new approach to policy is adopted, reveals EY’s Regional Economic Forecast. The report shows that despite efforts to tackle the North-South imbalance, the share of the UK economy accounted for by the four most southerly regions of England increased from 60% to 63% between 1997 and 2019. This trend is set to continue: London, the South East and the East of England will be the three fastest growing regions while the North East, Yorkshire and the Humber and the South West, will be the slowest growing locations.
EY’s fifth economic forecast for England’s regions, cities and towns warns that imbalances in growth between different places within regions will also continue to increase, with larger cities pulling further away from towns and other smaller neighbours. Gross Value Added (GVA) in the largest cities in England is expected to grow at 2.2% annually on average compared to growth of 1.6% for towns.
Mark Gregory, EY UK’s chief economist, comments: “Encouragingly there appears to be a strong consensus that regional disparities need be addressed. But our forecast shows the scale of the task facing Government in seeking to ‘level up’ the country and just how important the policy announcements in the Budget will be.
“Despite the launch of at least 40 geographic policy initiatives over the last five decades, the UK remains one of the most regionally unbalanced developed economies. Recent city centric initiatives such as the Northern Powerhouse and Midlands Engine have been successful in boosting the economic performance of some locations, but the impact has not been felt across the whole country. If we are to succeed in ‘levelling up’ the economy, a more radical and segmented approach is now urgently required.”
Geographic imbalances set to widen
EY’s analysis shows that between 1997 and 2019 towns and communities in England grew 1.8% – a sixth slower than the rate achieved in the larger cities and way behind the 3.2% achieved by London and the 3% of Manchester. Towns in the North East and Yorkshire and the Humber only grew at 1.4% annually during the period, and those in the East Midlands by 1.7% – the three worst performing regional groups.
The report shows how desperately ‘levelling up’ is needed. In every region of the country the largest cities are forecast to grow faster than towns, increasing the already significant gaps in economic performance. Towns in the North East and Yorkshire and the Humber will grow at 1.1% compared to growth of 1.7% in Newcastle and 1.9% in Leeds.
The UK’s fastest growing cities between 2020 and 2023 are forecast to be Manchester 2.2%, Nottingham 2.1%, Bristol 2% and Cambridge 2%. Reading is also identified as a fast-growing location at 2.2% GVA.
Imbalances in growth are partly structural, says EY
The variation in performance by place in the EY forecast, reflects differences in sector structure. For example, the public sector and manufacturing are disproportionately important to towns in the North and Midlands. With expectations of continued pressure on current Government expenditure, the Government acknowledging that the future trading arrangements with the EU appear likely to mean friction at customs, and a challenging global outlook for goods trade, the prospects for the both sectors appear relatively weak. The public sector typically accounts for over 20% of economic activity in Northern towns and manufacturing contributes 14% to 15% of the local economic output. This compares to around 7% of economic activity from manufacturing in the South East and 3% in London.
In contrast, Professional and Administration Services and the ICT sectors are set to perform strongly, growing at 3.2% and 3.1% respectively – twice the rate on average of other private sector dominated parts of the economy between 2020 and 2023. Spending on Health is forecast to grow at 2% but, while current projections suggest this will offset some of weaker growth from manufacturing and other public sector activity, it appears likely to flow more to faster growing cities nationally and towns in the South of England.
Mark Gregory adds: “One of the big challenges is that the imbalances in growth are partly the result of sector dominance in certain regions and are therefore partly structural. These challenges are exacerbated by other policies conflicting with attempts at geographic rebalancing. Future policy will need to be sufficiently powerful and better integrated to overcome these headwinds.”
Employment will grow faster in cities than towns in every region in England
According to the report, employment is expected to grow in cities at 1% annually between 2020 and 2023 – double the 0.5% growth forecast in towns. In every region in England, the growth in employment will be highest in the largest cities and lower than the regional average in the towns. Manchester tops the table for employment growth in the period to 2023 at an average of 1.4% per year, underpinned by gains in the administrative & support services and professional, scientific & technical sectors. Meanwhile, The North West and Yorkshire and the Humber growing at 0.3% annually, and the West Midlands and the North East growing annually by 0.3% and 0.2% respectively, are expected to be the regions with the slowest growing town labour markets.
The report warns that, if there are more opportunities in cities, there may be a temptation for some people to either move or commute to pursue these opportunities. This may in turn risk further weakening the economies of towns.
Expected regional wage growth to 2023 does offer some positive support for the Government’s ambitions though. EY’s report suggests that there will be improved wage growth throughout England, with all regions seeing faster growth than over the previous three years.
Policy recommendations – an agenda for change
EY is encouraged by the clear priority the Government is giving to ‘level up’ the UK economy and believes there is strong support for a new and more radical approach. EY has set out five key recommendations that it believes will help drive the agenda for change. These include: putting the agenda at the heart of policy-making, rather than it being treated as a separate strand of activity; developing policies from the ‘bottom up’, based on local strategies rather than ‘top down’ national initiatives; allowing for differences by recognising that a variety of approaches will be required for different locations; using aggregated local plans to help inform resource decisions nationally on issues such as infrastructure, skills and housing; and developing targeted interventions, including those focussed on technology.
Debbie O'Hanlon, EY Managing Partner, UK Regions, comments: “The geographic imbalances in the UK are long-standing and it’s clear that there is no silver bullet or easy solution. This will take concerted and integrated policy thinking by government, as well as business, academia, and other stakeholders. Collaboration is vital and we must all be committed to supporting attempts to maximise the opportunities and performance in all parts of the country.”
To find out more please visit: ey.com/uk/regionalforecast.
Notes to editors
About the report
Definitions – detailed information and examples of each type of location.