Region’s economic growth to remain modest due to Brexit-related uncertainty

PwC’s latest UK Economic Outlook (UKEO) projects that economic growth in the West Midlands is likely to remain inline with UK-wide projections, growing by around 1.1%  in 2019 and 0.8% in 2020.

The report  projects that UK economic growth is likely to grow by around 1.2%  in 2019 and 1% in 2020 – significantly below its long term average rate of around 2%.

According to the report, economic growth has slowed over the past two years primarily due to a dampening of business investment, resulting from both a lack of clarity over Brexit as well as heightened global trade tensions.

Although consumer spending has continued to drive the UK economy, supported by recent rises in real incomes, a cooling housing market coupled with slower jobs growth means there is likely to be only moderate consumer spending growth of around 1.2% in 2019 and 1.4% in 2020.

Matthew Hammond, Midlands region chairman for PwC, said: “We are projecting to see modest but positive growth across the Midlands, in line with continued national economic growth. Despite a challenging backdrop of economic and political uncertainty, the region continues to see strong levels of inward investment and businesses seeking opportunities to do business here.

“Our UKEO comes swiftly on the back of our Good Growth for Cities Index, which shows Midlands cities continuing to perform well across a range of measures, particularly for new jobs, skills and businesses, demonstrating it is a high performing region to live and work in.”

PwC forecasts that all 12 UK regions across will see modest but positive growth in 2019 and 2020. Although in previous years London has generally had the strongest growth rate of any UK region, PwC predicts it will grow only slightly faster than the UK average in 2019-20, due partly to the greater exposure of some London activities, such as the City, to adverse effects of Brexit uncertainty.

Jing Teow, senior economist at PwC, said: “Our latest projections indicate that the South East, South West and Scotland should perform reasonably well both this year and next, but the differences from the UK average growth rate are small.

“By contrast, the North East, Wales and Northern Ireland are projected to lag behind slightly with growth of only around 1% in 2019 and 0.8% in 2020.”

As inflation has fallen back below the Bank of England’s 2% target in recent months, real earnings have started to grow again at a relatively strong pace. While this upward trend is expected to continue into 2020, it is difficult for strong real wage growth to be sustained on a longer-term basis unless productivity also picks up. The productivity challenge is the focus of the special research articles in PwC’s latest UK Economic Outlook.

The report examines UK regional productivity, revealing wide variations in domestic productivity per job, as well as from an international perspective. PwC concludes that UK output per worker is around 10-15% behind Germany, France and Sweden and more than 30% behind the US.

Regional productivity gaps are large, with output per job in London around 40% above the UK average, but around 11.8% below the national average in the West Midlands. In addition, the gap between the best and worst performing local enterprise partnerships (LEPs) in England is widening, with productivity in the highest-ranking LEP being around 2.1 times more than the lowest-productivity LEP in 2017, as compared to 1.8 in 2002.

A number of LEPs, such as Coventry and Warwickshire, have seen rapid improvements in productivity, while LEPs like Humber have struggled to improve their productivity in recent years.

The report suggests a number of strategies that could be employed to help boost productivity across the regions. Notably, businesses can promote workplace training and upskilling, a recommendation that is reinforced by PwC’s recent global skills survey, which showed that the desire of UK employees to learn new skills is not being met by employers. In addition, investment in local infrastructure could boost connectivity (and therefore productivity). LEPs could collaborate to strengthen intra-regional connectivity. This could utilise the Oxford-Cambridge arc as an example, which is supported by four LEPs in an effort to boost east-west transport connectivity through the East West Rail and Expressway.

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