Cambridge Leads The Way In GVA Growth Whilst London Tops The Job Creation Charts
The combined economic value of the UK’s largest cities will be £11.7bn greater by the end of 2017 than it was in the three months after the EU referendum, according to a new study by law firm Irwin Mitchell.
The UK Powerhouse report, produced for Irwin Mitchell by the Centre for Economic and Business Research (Cebr), reveals that despite greater uncertainty, rising inflation and falling investment by businesses, all of the 38 cities in the quarterly study will see their economies expand and are set to post growth in job creation during 2017.
According to the report, Cambridge, Oxford and Milton Keynes will have the fastest growing economies in 2017, although their annual growth rates will be significantly lower than they were in the three months immediately after the EU referendum vote. The economies of Swansea, Belfast and Middlesbrough are expected to expand at the slowest rate in 2017.
Although traditionally fast growing cities such as Cambridge are expected to see GVA* growth fall from 2.9% in the year to Q3 2016 to 1.4% in the 12 months to Q4 2017, the rate of decrease will be greater in the so-called Northern Powerhouse. Greater Manchester’s economy, for example, grew by 2.4% in the 12 months to Q3 in 2016 but growth is expected to slow to 0.6% by the end of 2017.
In a report which revealed that not one of the top 10 fastest growing cities in 2017 will be in the Northern Powerhouse, places such as Leeds and Sheffield are expected to see GVA grow by 0.7%.
UK Powerhouse says that Brexit is likely to have a key role in determining the prospect of cities around the UK in 2017 and states that suggestions of a ‘hard Brexit’ will bring greater uncertainty for Britain’s firms which could hold back investment and therefore limit growth in many cities.
The sharp fall in the value of the pound against other currencies following the Brexit vote will continue to drive higher inflation in 2017. With price rises putting pressure on modest wage growth, consumer spending strength will be drastically weakened next year. Consumer spending is expected to grow by only 0.9% in 2017, down from an expected 2.7% this year, and this is expected to hit key retail hubs such as Birmingham, Manchester and Leeds hardest.
Rising import costs are also putting increased pressure on the manufacturing sector and these increased costs could constrain factory output with tighter margins. Key manufacturing hubs in the UK, such as Derby, Hull and Sunderland are the most vulnerable to slowdowns in the sector. The report adds that overall the manufacturing sector should pick up as exports strengthen, but questions whether this will be the case in years to come.
According to UK Powerhouse, Brexit isn’t the only catalyst which could reduce city economic growth in 2017. The report also says the election of Donald Trump could shift the USA’s focus to inward-facing trade policies and a protectionist economic strategy. Given the fact that there are 275 US-owned companies on Welsh soil employing around 48,000 people, Trump’s claim to relocate many firms back to the US could potentially be deeply unsettling for Welsh cities.
Expert Opinion“I’m pleased to say that many cities experienced robust growth in the three months following the referendum result but we expect the continually unfolding political events to have widespread effects upon the UK and its cities over the next 12 months.
“With greater uncertainty facing UK plc, investment is likely to fall in 2017 which may limit growth in many cities to different degrees. Furthermore, with lower consumer spending, many places are likely to see constrained growth next year as households tighten their budgets.
“Challenges bring opportunities and although the economic landscape will get tougher, we believe there is huge potential to help businesses unlock the potential that the UK regions offer. UK firms have been incredibly resilient in 2016 and if businesses and governments work collaboratively and we focus on the right areas, I think a huge amount can be achieved to raise productivity levels across the UK.”
Victoria Brackett - CEO of Business Legal Services & Partner
Jack Coy, an economist at Cebr, said: “The delayed effects of Brexit have been in the pipeline for a while, and there will be some difficult economic pressures in 2017. These are likely to be felt throughout cities across the UK, and threaten to slow growth in the short and medium term. For example, rising inflation under a sharply depreciated pound challenges profits for producers nationwide. With consumer spending also sapped by rising prices, and a labour market which has probably passed its peak, growth may slow across the country. Retail hubs may also see spending growth soften, while consumers rein in budgets.
“However, investment at city and national level can help promote job growth and boost local economies. The report from quarter three highlights the importance of innovation, digital technology, and service-led economic growth within UK cities. Despite uncertainty for the year ahead, the best performing cities will be those who adapt to changes and capitalise on new opportunities. For example, the weaker pound gives UK exporters a competitive advantage, and those cities exporting goods internationally may profit from this – the contribution of trade to GDP in Q3 shows this potential.”
To download the latest version of the report, click here
Irwin Mitchell has recently joined forces with the CBI to launch a new high profile campaign which aims to reduce regional productivity differences and add £208bn to the UK economy over the next decade.