North West near front of pack for post-COVID recovery

The North West is forecast to be one of the country’s strongest performing regions to 2023 as the economy recovers from the COVID-19 pandemic, with its GVA (gross value added) and employment growth behind only London and the South East, a new report from EY has revealed.

EY’s latest Regional Economic Forecast says that North West GVA is expected to see an average annual increase of 0.11% between 2019 and 2023 – a difference of 0.4% and 0.28% respectively, when compared to top performers, London and the South East.

Although the North West will see employment decline at a rate equivalent to an average of -0.08% a year by 2023 compared with 2019, it is just behind those same two Southern regions – the only regions to see positive growth over the same time period.

The professional, scientific & technical and wholesale & retail sectors will be the most dynamic in the region, with the latter benefiting in the near-term from pent-up demand, according to the report.

After London (-10.4%) and the South East (-11.37%), the North West (-11.75%) has seen the smallest decline in GVA over 2020.

This is partly because the region is home to a high proportion of sectors likely to have been least affected by restrictions on activity, including financial and professional services and IT. Among other factors, these sectors were able to move a significant share of activity online during the pandemic.

Stephen Church, EY’s North Markets Leader and managing partner for Manchester, said: “The North West region is fortunate to have a fairly mixed economy and, therefore, it remains resilient.

“While it’s encouraging to see positive GVA growth across our core North West cities, it’s also important that our towns are not be left behind as the economy recovers from the COVID-19 pandemic.

“Manufacturing, arts and leisure, and hospitality – crucial parts of the economies in towns, and the North – have been most affected during the pandemic, or are likely to take longer to recover.”

The report says the cities of Manchester, Liverpool, Preston and Carlisle will continue to outpace other parts of the North West.

Manchester leads the North’s growth table with equivalent average annual GVA growth of 0.51% forecast and annual employment growth of 0.42% forecast between 2019 and 2023.

Manchester’s relatively favourable employment and GVA outlook is underpinned by gains in the professional, scientific & technical sectors, while the city’s accommodation & food service and manufacturing sectors will fare less well over this period.

Liverpool follows closely behind Manchester with annual GVA growth of 0.4% and annual employment growth of 0.29% between 2019 and 2023, underpinned by gains in the human health & social work, real estate and public administration sectors.

Again, these gains will be offset, in part, by overall contraction in accommodation & food service and manufacturing.

Meanwhile, Preston and Carlisle will also see positive annual GVA growth of 0.3% and 0.27%, respectively, while employment is expected to increase by 0.08% annually in Preston with a slight annual 0.07% contraction forecast for Carlisle over the period.

The North West’s towns, by contrast, are likely to see less economic and employment growth than the region as a whole, although Chorley is a notable exception with the town’s expected to see annual average GVA growth of 0.34% between 2019-23 and annual employment growth of 0.12% over the same period – both figures are higher than the regional equivalents.

Blackpool is predicted to be the town with the slowest recovery in the region, with a forecast change in employment between 2019-23 equivalent to an annual average of -0.54% and a GVA change equivalent to an annual average of -0.31%.

The report highlights wide variations in economic structure across the region.

In Blackpool, two fifths of employment is in the public sector, education and health and social care and, unsurprisingly given the town’s history, around another 30% in retail, hospitality and the arts and leisure. Whereas in nearby Preston, a 10th of jobs are in high value services and another 10th in back office services.

Nationwide, only the South East and London are forecast to employ more people in 2023 compared with 2019. At the same time, cities are expected to outperform their regions in economic and employment growth by 2023.

When measured by GVA, the economies of just five out of nine English regions are forecast to be larger in 2023 than they were in 2019.

Along with the North West, three of these regions are in the South: London (0.51% annual growth forecast); the South East (0.39%); and East (0.08%), while marginal growth (0.01%) is forecast in the East Midlands.

Of the four regional economies expected to be below their 2019 sizes by 2023, three are outside the South: Yorkshire and Humber (equivalent to a -0.31% annual decline in GVA forecast); the North East (-0.29%); and West Midlands (-0.26%). The South West’s 2023 GVA is expected to be lower than 2019’s level by the equivalent of a -0.17% annual decline.

Stephen Church said: “The pandemic has put the levelling up agenda in sharp focus and this report clearly shows that is about so much more than the economies of the North catching up with the South.

“Some of the recent shifts in how we organise work and home life have been positive for economic rebalancing and mean there could be opportunities to create ‘virtual’ jobs in places that have found it difficult to attract higher value-added sectors.

“The Government’s recent initiatives, including the Levelling-up Fund and National Infrastructure Strategy, are welcome, but new approaches are required to avoid a growing gap between towns and cities, as well as North and South.

“A policy focus on supporting sectors, like manufacturing, which matter to both investors and towns would help, while the shift to ‘net zero’ can transform the economy.”

He added: “Crucially, the Government must avoid a top-down approach – boosting local capabilities and understanding local characteristics should be the starting point for working up to national policy frameworks.”

According to the report, just over half of the UK’s major economic sectors will have grown in GVA terms by 2023 compared to 2019.

The biggest growth by 2023 is expected in health (0.92% annual increase in GVA), professional services (0.78%), and IT (0.76%). The greatest shortfalls relative to 2019 are expected in manufacturing (-1.83%), hospitality (-1.36%), and arts and leisure (-1.29%).

The report says that the levelling up agenda can get back on track with targeted government and local action, and if lessons are learned from the pandemic’s impact on work-life balances.

Rohan Malik, EY’s UK&I managing partner government and infrastructure, said: “Growth is forecast to be driven by high-end services which dominate city economies so, while the outlook for levelling up is disappointing, it is perhaps not surprising. By weakening the sectors that towns are most dependent on, COVID-19 has made levelling up harder.

“Looking ahead, manufacturing will be key to the levelling up agenda.

“An estimated 86% of manufacturing activity is located in towns or smaller cities outside the South East, while our recent UK Attractiveness Survey found significant investor interest in reshaping manufacturing supply chains and reshoring activity to the UK. Although a difficult near-term is forecast for the sector, opportunities are there longer-term.

“Technology will play a major role in the sector’s future, so the UK can compete in a way that was not possible when labour costs drove location decisions. A relaunched Industrial Strategy should target emerging opportunities here.

“To accelerate the levelling up agenda, the Government’s aim should be to tailor sector opportunities to local conditions.

“These should dictate what is needed for investment in skills, transport, digital and social infrastructure. Once plans are agreed, resources should be released to local control for delivery wherever practical.”