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How the UK’s rising cost-of-living will deepen a regional economic divide
In this webcast, panellists discuss the UK Regional Economic Forecast 2023 and the cost-of-living pressures on the UK‘s regions. Watch on-demand.
Which parts of the UK economy will have recovered to their pre-pandemic size by the end of 2023?
The new forecast also says that, by the end of this year, UK GVA is expected to be 0.1% higher than it was in 2019, with London (up 3.2%), Yorkshire and the Humber (0.6%), the South West (0.5%), the East of England, Northern Ireland and the East Midlands (all 0.3%) outpacing the rest of the country. The West Midlands (-1.7%), South East (-2.1%) and North West (-2.5%) are forecast to be furthest from their pre-pandemic levels.
Further out, over 2024-2026, UK GVA is expected to grow at an annual average 2.1%, with London growing 2.6% per year. The South East (2.2%), South West (2.1%), East of England (2.1%) and West Midlands (2.1%) are also forecast to outpace or match wider UK growth. Like London, the West Midlands and the South West are both expected to be boosted by strong growth in the information and communication sector, which is expected to be the UK’s fastest growing sector in the medium-term.
Meanwhile, the North East, Scotland, Yorkshire and the Humber, and Wales (all 1.7%) are forecast to see the slowest growth in the country.
Which cities are expected to have the fastest growing economies?
The Regional Economic Forecast includes an analysis of the economic prospects for the UK’s towns and cities, and the report predicts that a handful of towns and cities are set to outperform the rest of the country this year. Joining London (-0.2%) among the largest towns and cities forecast to match or beat the overall UK GVA performance in 2023 (-0.6%) are Reading (0.7%), Manchester (0.4%), Bristol (0.3%), Newcastle (0%), Cardiff (-0.1%) Glasgow (-0.2%), Belfast (-0.4%) and Cambridge (-0.6%). Manchester (0.6%), Bristol (0.5%) and Reading (0.5%) are expected to see the country’s fastest employment growth this year.
Reading, Bristol and Manchester – all likely to enjoy strong growth in professional, scientific and technology services, the information and communication sector, and in administrative and support services – are also forecast to perform well over the medium-term. Reading (2.7%) is expected to be the fastest growing location in the country over 2024-26; Manchester (2.5%) and Bristol (2.4%) are expected to be just behind the capital (2.6%).
The leading smaller locations in the medium-term are forecast to be Windsor & Maidenhead (annual average GVA growth of 2.4% over 2024-26), Brighton (2.4%), Lichfield (2.4%), the wider Thames Valley (2.4%) and Chorley (2.4%). Four of the five slowest growing areas are in the North, with Durham (1.2%), Hull (1.2%), Rotherham (1.4%), Hartlepool (1.4%) and Plymouth (1.4%) trailing the rest of the country.
Peter Arnold, EY UK Chief Economist, comments: “Sectors are again a key factor in forecast performance at a city and town level, and it’s not a surprise to see growing tech hubs like Reading leading the table for expected growth. While the pandemic put pressure on city centres or supply chain-dependent manufacturing areas, the rising cost of living is likely have the biggest impact in places that are dependent on their local High Streets or public sector jobs.
“There’s also a North-South divide in the pressure on consumers, with petrol consumption among the key cost increases over the last year. This is more likely to be more of an issue for those outside London and the South East, where commuting or travel by car is more common. By contrast, the rise of post-pandemic homeworking is more prevalent in London and the South East, areas which, in any case, benefit from extensive public transport coverage.
“When considering regional inequality, economic inactivity is also likely to be a key factor. While this has grown in all but two regions since the pandemic, a handful of areas have seen particularly large increases. A large proportion of those leaving the workforce are between 50 and 64 years old, with long-term illness identified as a key driver. The withdrawal of experienced skills from the workforce will be a drag on performance, while those dealing with long-term health issues will need support.”
The three non-London English regions to see the largest increase in their share of economically inactive people after the pandemic are the North East (24.6%), the North West (22.5%) and the East Midlands (22.2%).