Regional Economic Performance Set To Reignite North-South Divide Debate

A new report has revealed the daily impact of the coronavirus lockdown on the UK’s regional economies and highlighted which sectors are performing the strongest and protecting the UK from even greater damage.

The new UK Powerhouse study has been produced by national law firm, Irwin Mitchell, and the Centre for Economics & Business Research (Cebr). 

It says that London’s economy is currently losing £575m a day as a result of the coronavirus lockdown. It warned however that due to industry mix and the existing number of people that worked from home, the local economies in other parts of the UK are being impacted even more.

Despite stating that the UK economy is losing £2.7 billion a day in absolute terms, the report says some sectors such as agricultural, forestry and fishing, along with the information and communication sector, have remained strong with a relatively low daily GVA fall of 14% and 2% respectively.

It adds the UK has been in a relatively good position to face lockdown due a significant share of the economy being comprised of the financial and insurance services sector which is estimated to be experiencing a relatively low daily reduction in GVA of just 18%.The report says this sector can largely be operated remotely and thus people have been working from home, albeit with some loss in productivity.

Irwin Mitchell’s report says this sector to an extent has shielded London’s economy because although the city region has the greatest absolute reduction in GVA per day, its relative fall of total economic output of 28% is the lowest in the UK.

The East Midlands reliance on manufacturing, which is seeing a daily 75% fall in GVA, coupled with a relatively small professional services sector means its total loss as a proportion of its total economy is the greatest at almost 40%.

Expert Opinion

“The coronavirus pandemic has affected everyone’s lives and is causing huge uncertainties for the economy, but we as a nation we must stand tall and remain positive.

“Coronavirus is affecting sectors of the economy differently and this means that regional economies will recover at different rates when the lockdown restrictions are reduced. It’s vital that these restrictions are lifted at the right time and the government must support different sectors accordingly and not deviate from its crucial ’levelling up’ agenda.”
Victoria Brackett - Group Chief Commercial Officer

As part of the analysis, the report looked at how well prepared different regions of the economy were for working at home before the lockdown.

Overall, when considering the evidence for how well-placed employees in different regions are for being able to work from home amid the lockdown, the report says there appears to be a North-South divide with people in the South being more likely to have already been working remotely before the crisis, meaning that they have been able to continue their usual working patterns.

Daryn Park, an economist at Cebr, said: “The impact of the UK’s lockdown strategy will not have a homogenous effect on the economy. Industries tend to cluster together, and hence certain regions are likely to weather the lockdown period better than others. 

“London, for example, has a high concentration of financial and professional services that, to a greater extent, can continue operating under lockdown. The West Midlands in contrast has a high concentration of manufacturing which, as a result of a fall in demand for consumer products, has seen a subsequent fall in demand for manufacturing outputs, negatively affecting their economy.”

Methodology

To calculate the UK’s impact (and the regions), Cebr calculated the pre-COVID GVA per day. To assess the lockdown’s impact, it estimated demand and supply-side impacts for each of the sectors below – these impacts include elements such as ability to work remotely, proportion of workers off sick, actual demand for the products and supply-chain disruptions that the lockdown has caused. As such, each sector listed below has an estimate of the impact of the lockdown and is presented in absolute terms and a percentage loss.