Yorkshire & Humber will see its overall productivity improve to 2021, and overall economic growth will increase although there will be a slowdown in the recently stronger performing cities such as Leeds Hull and Sheffield, according to a new report from EY.
EY’s annual UK Regional Economic Forecast shows that Yorkshire’s GVA (gross value added) is expected to increase to 1.5 per cent a year by 2021, from 1.3 per cent between 2015 and 2018, driven by private services but constrained by contractions in public sector activity.
The figure places it slightly below UK average growth of 1.7 per cent to 2021 and it sits middle of the pack, along with the North West, in terms of comparative regional performance.
However, the region’s cities of Leeds, Hull and Sheffield will all see GVA growth slow down to 2021. Leeds to 1.8 per cent (2015 to 2018: 2.1 per cent); Sheffield to 1.5 per cent (2015 to 2018: 1.7 per cent); and Hull to 1.2 per cent (2015 to 2018: 2.2 per cent).
Employment growth will be subdued across the country (except for the South East) with an anticipated shift in the labour market over the next few years resulting in the UK average standing at 0.5 per cent growth a year to 2021.
This reflects an overall slowdown in the UK’s economic growth, particularly in the traditionally strong south. The closing of the gap in growth rates between manufacturing and services has been a key factor in shaping the relative levels of change in activity across the UK.
Employment growth in the north will continue to lag behind the UK average over the next three years because it is typically more dependent on the manufacturing and public sectors, which are forecast to see reduced employment levels through to 2021. The North East (0.1 per cent), Yorkshire and Humberside, Wales and South West (all 0.4 per cent) are forecast to be the regions with the slowest employment growth per year up to 2021.
Manufacturing has grown over the last three years and employment has increased as a result. Regions with a large manufacturing base, including Yorkshire, enjoyed a particular boost last year, with the weaker sterling making exports more competitive.
However, more subdued growth is expected for these regions in 2018 to 2021, as sterling strengthens and global demand cools, amid a backdrop of more protectionist policies and also as technology is used to drive higher productivity in a more challenging labour market.
While all sectors are expected to have slower employment growth over the next three years as a result of a slowing economy, expected lower EU immigration and technological change, manufacturing and public sector employment numbers are turning negative.
In Yorkshire’s cities, Leeds employment growth is expected to reduce to 0.7 per cent a year (from 1.6 per cent in 2015 to 2018), contributing a total of 10,300 additional jobs to 2021. The professional, scientific & technical sectors, and wholesale & retail sectors will continue to increase their dominant share of employment in the city.
Sheffield and Hull are forecast to see employment growth slow to 0.4 per cent (from 0.8 per cent) and 0.1 per cent (from 2.0 per cent) a year to 2021 respectively, as lower immigration impacts manufacturing sector growth.
The report says that a 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: “EY’s report warns that across the rest of the UK, imbalances in growth between different places within regions will continue to increase, with cities and larger towns pulling away from their smaller neighbours.
“However, the positive GVA growth forecast for Yorkshire demonstrates the diversity of our economy, with strengths in technology, professional and financial services, as well as the geographic spread of these businesses. This makes our overall economy much more resilient with balanced growth that is not confined to cities.
“But the pace of change in the make-up of our economy gives no room for complacency. There is still a need to reskill our labour market and focus on the huge opportunity presented by digital and technology.
“The national figures clearly show that one of the big priority areas for policy-makers should be an investment in skills. It is vital that we enable the UK workforce to respond to a more challenging and changing labour market. When skills development is viewed in the context of geographic imbalances, it’s clear that more of the activity on skills and education has to be shaped at a local level and not ‘top down’.
“We would also like to see a comprehensive assessment of the retail sector and the policy needed to support the transformation of our UK high streets. This should go beyond just business rates and also consider planning approaches, environmental issues, the costs of the online supply chain and alternative models for high streets.”
Across the UK, growth is set to be more geographically balanced over the next three years, but there has been little progress towards reducing imbalances in the previous three years.
However, the report says this more balanced growth profile will principally be the result of slower growth in the services sector, which will have a detrimental impact on the south of the UK, rather than other regions ‘catching up’ through an improved performance.
Mark Gregory, EY’s chief economist, said: “The recent slowing services sector growth has limited further increases in the geographic differences between North and South.
“While there are positive and encouraging signs in some areas, the forecast shows that rebalancing is a more significant and complex challenge – particularly at a local level. Radical thinking and targeted policy action will be needed if the UK is to truly see the benefits of a more balanced economy.”
Sunderland (1.1 per cent), Teesside and Hull (both 1.2 per cent) make up the bottom three performing urban areas by GVA growth per year. However, at 1.2 per cent the gap forecast between the fastest and slowest growing cities over the next three years will be significantly less than from 2015-18 (3.5 per cent).
Despite the growth gap getting closer between the fastest and slowest growing cities, the report says that smaller locations are falling further behind. Core Cities in the forecast (London, Leeds, Manchester, Liverpool, Newcastle, Birmingham, Cardiff and Bristol) are expected to grow at 1.8 per cent annually on average between 2015 and 2018 and Large Towns are expected to grow by 1.6 per cent. In contrast, smaller locations are forecast to grow by just 1.5 per cent.
Mark Gregory added: “The UK’s approach to geographic rebalancing must identify how smaller cities and towns, and the more remote parts of the country, can benefit from the success of the faster-growing Core Cities. Improved connectivity, both physical and digital, will be critical in ensuring that the economy is one in which everyone has a chance to participate fully, regardless of location.”