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 Thames Valley is set to be one of the strongest performing regions over the next three years, with 2.2% predicted growth in Gross Value Added (GVA) – higher than the South East region (1.9%) as a whole.
The report also forecasts strong growth for four locations in the Thames Valley between 2020-2023: Guildford (2.5%), Slough (2.4%) Windsor & Maidenhead (2.3%) and Reading (2.2%).
Basingstoke has outperformed as one of the largest GVA contributors during the last three years at 3.9% (2016-2019). However, it is predicted to fall into line with the rest of the Thames Valley’s towns, with GVA growth of 1.7% over 2020-2023.
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. 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.
Tackling the North-South imbalance
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 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
Richard Baker, EY managing partner for the Thames Valley and South, commented: “Whilst the report shows how desperately ‘levelling up’ is needed, the predictions for the Thames Valley are particularly interesting. In every region where a large city exists, they are forecast to grow faster than their neighbouring regional towns. However, the strength of predicted increases in GVA for Slough, Windsor & Maidenhead, Guildford and Reading, all of which exceed that of the major cities and London, means the Thames Valley is bucking the trend of the more dominant larger cities sucking the growth out of towns. It also shows that the Thames Valley has much more opportunity for broader growth.
“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
The report found that during the period 1997-2019, GVA in the Thames Valley grew at a higher rate than the rest of the England, 2.4% and 2.1% respectively. Reading was the strongest performing town in the Thames Valley during this time with 3.4% GVA growth. However, this growth is predicted to slow over 2020-2023. The Thames Valley and Reading are both forecast to grow by 2.2%, higher than the South East in general, which is predicted to grow by 1.9%. The biggest increase in GVA will be felt by Guildford (2.5%) and Slough (2.4%).
Across the Thames Valley, the top three sectors set to have the strongest GVA growth are Professional, Scientific and Technical (3.4%), Information & Communication (3%) and Real Estate Activities (2.9%), which remains unchanged from the previous three years.
Employment growth in the Thames Valley
In the period 2020 to 2023, employment growth is forecast to average 1% per annum in the Thames Valley. Among its biggest towns, employment growth is predicted to be largely unchanged from 2020-2023, compared to the three years previous. Reading is set to see growth from 0.7% (2016-2019) to 1.1% (2020-2023), Guildford from 1.1% to 1.2% and Slough is predicted to see a slight fall from 1.4% to 1.3% in the same period.
The top three sectors for employment growth across the Thames Valley are predicted to be Administrative & Support Services (2.1%), Arts, Entertainment & Recreation (2.1%) and Professional, Scientific & Technical Activities (1.9%).
Baker added: “The expected development of the labour market over the next three years is likely to be another source of challenge for policy makes seeking more balance in geographic activity levels.
“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-makers, 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, commented: “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 visit: www.ey.com/uk/economics.