Yorkshire & Humber is expected to see its growth rate fall below the national average and record the smallest employment expansion in England, as cities and towns like Leeds, Sheffield, York and Harrogate continue to outperform the region, according to a new report from EY.
EY’s annual Regional Economic Forecast shows that Yorkshire’s GVA (Gross Value Added) growth is expected to slow from the 1.4% average experienced between 2016 and 2019, to 1.2% per year until 2023. The report identifies employment levels as the main challenge faced by the region, particularly in the contracting manufacturing sector.
The figure positions the region below the predicted UK average growth rate of 1.6% to 2023, placing it at the bottom of the pack, along with the North East, in terms of comparative regional performance.
Leeds is also expected to see its GVA growth fall from 2.5% (between 2016 and 2019), to a predicted 1.8% for 2020 to 2023. However, this still sees the city above the regional average and amongst England’s highest performing cities, particularly when GVA per head is considered.
As for the region’s towns, York and Harrogate are also predicted to experience a slowing in their GVA growth over the next three years, whilst still remaining well above the regional average. York is forecast to see GVA growth at 1.8% over the next three years (compared to 2016 to 2019: 2.0%) and Harrogate at 1.76% (2016 to 2019: 2.4%).
Sheffield is identified as an exception within the region with GVA expected to rise by 1.6% over the next three years, up from 1.2% between 2016 and 2019. This is despite the city’s reliance on manufacturing, which is expected to be offset by employment growth across sectors such as human health & social work and professional, scientific & technical.
Growth in employment numbers in Leeds continues to increase from 0.9% in 2019 to 1.2% for 2020 with an average growth rate of 0.9% until 2023, equivalent to 4,700 jobs per year. The professional, scientific & technical sectors, administrative sectors are forecast to continue to increase their dominant share of employment in the city.
York and Harrogate are forecast to see employment growth increase to 0.7% (from 0.4%) and 0.6% (from 0.1%) a year to 2023 respectively, both underpinned by gains in the professional, scientific & technical sectors as well as the administrative & support service sectors and health & social work.
Total employment in Sheffield increased by 0.7% in 2019, equivalent to the creation of 2,000 new jobs, with this rate expected to grow to 0.8% for 2020 and then average at 0.6% per year until 2023. Once again, this increase is attributed to growth in the human health & social work and professional, scientific & technical sectors.
The report indicates that a continued slowdown in the retail sector, especially on the high street, also poses significant challenges for smaller towns and communities as retail tends to be a major employer in these locations.
Suzanne Robinson, EY’s Managing Partner for Yorkshire, said: “This report highlights the well-documented issue of the increasing disparity between major cities and towns across the UK. It’s great to see Leeds continue to perform well and capitalise on the expansion of the media and digital sectors in the region.
“However, the top-down approach doesn’t appear to be working and, although recent announcements like the green-lighting of HS2 should certainly help with infrastructure and connectivity, we need a different approach if we are to truly ‘level-up’ the economy.
“Despite the gradual decline of manufacturing and retail and the historic reliance of Yorkshire’s major towns on these sectors, it’s encouraging to see that both Sheffield and Harrogate are forecast to experience sustained growth over the next three years.
“Targeted levelling up and increased devolution right across the North are needed to provide regions such as Yorkshire and the Humber with the power to invest in towns and communities, not just the core cities. What’s needed is a blend of public and private sector investment to spread the wealth right across the region for the benefit of everyone.
“We have huge opportunities across the region, especially within our professional and scientific & digital sectors that are all experiencing growth. Couple this with our improving infrastructure and connectivity, enabling the region’s prosperity to be enjoyed by all our towns, not just our major cities.”
The national outlook
The UK economy is expected to strengthen over the coming months but the geographic imbalances between the North and South of England will widen over the next three years 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, said: “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. London, the South East and the East of England will be the three fastest growing regions in England with GVA forecast to grow between 2020-2023 by 2.1%, 1.9% and 1.6% respectively. 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 2020-2023 2020 to 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 in the next three years. 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 2020-2023 – 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 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.