North-South Divide Shows No Sign Of Closing

Economic growth within the UK’s key cities will continue to slow during 2016 according to a new report which also highlights that the Government’s flagship ‘Northern Powerhouse’ initiative is still struggling to gain traction.
 
Law firm Irwin Mitchell’s latest UK Powerhouse report, which has been produced with the Centre for Economic and Business Research (Cebr), provides an estimate of GVA¹ and job creation within 40 UK cities 12 months ahead of the Government’s official figures.
 
Highlighting a general slowdown in the economy, the study reveals that although London’s economy grew by 3.1% in 2015, the rate of growth is expected to fall to 2.7% over the next 12 months.
 
The total value of the goods and services produced in London is expected to increase to £370.9 billion in 2016.
 
Although all cities in the study increased their GVA, the report reveals that Cambridge and Milton Keynes were  the fastest growing in the third quarter of 2015 with 3% and 3.4% respective year-on-year rise in output.
 
These two cities, which are benefitting from strong demand for business services and advanced engineering expertise, are expected to continue outperforming the rest of the UK over the coming 12 months - although at a slower rate compared to 2015.
 
Despite the strong growth in 2015, both cities faired differently in terms of job creation. According to the report, employment in Milton Keynes rose by 4.7% whilst in Cambridge the figure was much lower (1.5%).
 
During 2016, GVA in Milton Keynes is expected to grow by 2.8% while in Cambridge it is set to increase by 2.9%.
 
The report also highlighted that in the 12 months to September 2015, the 2.7% growth in GVA within Nottingham meant that the size of its economy is now larger than Oxford’s.
 
Out of all the cities included in the report, Middlesbrough’s economy grew the slowest. Heavy manufacturing has weighed on growth in the area with sectors such as the steel industry struggling against cheap imports and low levels of global demand. The economy here is therefore expected to grow at just 1.3% during 2016, which also makes it the slowest growing city in the study.
 
Other northern cities such as Hull, Bradford and Sunderland also remained in the bottom 10 in terms of projected GVA growth in 2016.

Economic growth within key cities of the ‘Northern Powerhouse’ region was lower during 2015 compared to London and many other cities in the South of England.
 
According to the report’s city tracker, annual growth recorded during Q3 in Greater Manchester stood at 2.6%. Leeds grew by 1.9%, Sheffield by 1.6%, Newcastle 2% and in Liverpool it was slightly higher at 2.1%.
 
Whilst some cities in the South saw employment rates increase by more than 4%, cities in the North struggled to create jobs at the same rate (Greater Manchester 1.4%, Sheffield 0.3%, Liverpool 3% and Newcastle 1.4%).
 
These key cities in the North, as well as Birmingham, will see GVA grow at rates of 2% or less over the next 12 months according to the report.
 
Looking further ahead, the report’s projections for the next 10 years still show that London will continue to grow much faster than other parts of the UK.
 
Irwin Mitchell’s report forecasts that by the third quarter of 2025, London's economy will have grown by 26.9% since 2015. Over the next 10 years Greater Manchester's GVA is predicted to grow by 18.3% with other large cities in the North expected to record similar increases in GVA with Leeds and Liverpool growing by just under 18%, Sheffield 15% and Newcastle recording a 17% increase.
 
The value of the economic gap between London and the northern region currently stands at £62billion and is expected to reach £115.3billion in 2025 according to the study’s latest analysis².
 
Irwin Mitchell produced its first UK Powerhouse report in October 2015. The report predicted a growing economic gap between the South East and the North of England and made nine policy recommendations along with a call for the government to radically rethink how it looks to rebalance the UK’s economy.

Expert Opinion

“Despite all 40 cities in the report expecting to see their economies expand in 2016, there are signs that momentum is being lost.

“The information provided by our latest tracker also shows that there is still much to be done to tackle the North-South divide and it’s vital that more is done now before it is too late.

“The recent devolution deals unlock considerable funds to help boost investment and long-term growth in a number of these cities, however, much of the impact won’t be fully realised in 2016. As such, growth in cities such as London, Cambridge and Milton Keynes look likely to record some of the strongest levels of output growth over the coming year driven by the growth of the service sector, their relative advantage in the manufacturing industries in which they operate and continued investment into these cities.”
Niall Baker - Chairman of IM Asset Management & Partner

Commenting on the report, Scott Corfe, Director at Cebr said: “The economy is likely to continue to cool slowly in 2016. In recent months, business confidence has taken a hit given concerns over the global economy, as well as policy uncertainty in the UK – particularly over membership of the European Union. With reduced optimism likely to weigh on business investment, the continuation of government deficit reduction, subdued export markets and the likelihood of an interest rate rise, the UK economy is set to battle stronger headwinds to growth in 2016.”
 
The report’s Powerhouse Tracker provides a ‘nowcast’ of GVA and employment for key cities across the UK. Cebr has utilised a range of timely indicators to create a detailed estimate of how the regional economies of the UK are performing up to 12 months ahead of the Office for National Statistics.

The latest report can be downloaded by clicking here.

¹ Gross value added (GVA) is a measure of the value of goods and services produced in an area

² 2012 prices