The East of England saw a significant slowdown in its economic growth activity in 2018, with 1.1% Gross Value Added (GVA) growth compared with 2.2% in 2017. However, the region is expected to recapture some ground with its growth rate improving to 1.6% until 2021, although this is still lower than the UK average of 1.7%.
Cambridge and the East economy to weaken as economic forecast predicts slow UK growth
EY’s Regional Economic Forecast identified that city growth typically outpaces regional growth. But this is not the case for Cambridge as the expected 1.5% GVA growth over the period 2018-2021 lags behind the region’s 1.6%. Cambridge’s employment growth forecast of 0.4% over the next three years is also behind the UK average of 0.5%.
Whereas in previous reports, the East, South West and South East have been the fastest-growing regions of the UK, EY’s latest report says these regions have all slowed relative to the rest of the country. In particular, slower growth in the services sector seems to have pulled back growth rates in the southern regions.
Looking ahead to 2021, average employment growth of 0.6% in the East is expected to outpace the UK average of 0.5%., The region is expected to account for 10% of all jobs created up to 2021 – with 97,000 jobs to be created in the East, out of a total 923,000 jobs across the UK. The region also saw the biggest reduction in unemployment across the UK in the year to August 2018 – a 28,000 fall resulting in its unemployment rate dropping to 3.0%.
Nick Gomer, Managing Partner at EY in the East (pictured), said: “EY’s forecast predicts slower growth across the UK regions and cities as Brexit uncertainty, labour challenges and technological disruption impact economic growth across the whole of the UK.
“All sectors are expected to have slower employment growth until 2021, but Cambridge’s lower than average employment growth is suffering due to lower population growth and lower immigration impacting sector growth in the city.
“In the case of the East, the region’s weaker GVA performance just strengthens the case for driving deeper geographic rebalancing to maximise the potential of all the UK’s regions. Brexit makes this policy even more important, both to maximise growth but also to support the UK’s transformation to be in a position to prosper after the UK has left the EU.”
Rebalancing gap gets smaller in the UK economy
According to the report, UK growth is set to be more geographically balanced over the next three years. However, this rebalancing will principally be the result of slower growth in the services sector, which will have a detrimental impact on the south of the UK, rather than the regions ‘catching up’ through an improved performance.
The UK economy is growing slower than its historic trend – with annual growth of 1.7% a year to 2021, more than half a point lower than trend. London will continue to outperform all other UK regions through to 2021, but in the three years since our first regional forecast, there has been no reduction of the imbalances between the South of England and the rest of the country.
The fastest growing regions of the UK with the highest GVA growth forecast per year up to 2021 are: London (2.1%), the West Midlands (1.7%) and the South East (1.7%). The slowest growing regions are the North East (1.1%), the East Midlands and Wales (both 1.4%).
Core cities outperforming the rest
EY’s analysis of eight core cities in the UK (Birmingham, Bristol, Cardiff, Leeds, Liverpool, London, Manchester and Newcastle upon Tyne) saw growth of 2.2% annually on average between 2015 and 2018, whereas large towns grew at 1.8%. EY’s forecast expects this distinction to continue with growth rates of 1.8% for core cities and 1.6% for large towns over the next three years.
The UK’s strongest performing cities will continue to grow faster than average, however the gap to the slower growing areas will be less than in the recent past with little more than a 1% difference in average annual growth rates between the fastest and slowest growing locations.
Employment growth expected to slow over the next three years
EY expects the rate of employment growth to be around 0.5% per annum on average over the next five years, compared to over 1.4% in the five years to 2018 – a major change in pace. A slowing economy, expected reduction in immigration and technological change are all contributing to this anticipated shift in the labour market over the coming years. The South East is the only region expected to see employment growth accelerate in the next three years compared to the previous three years.
The report says a slowdown in the retail sector, especially on the high street, also poses significant challenges for smaller towns and communities as retail tends to be a major employer in these locations. There are also similar challenges facing the manufacturing sector. The sector has grown over the last three years and employment has increased as a result. However, it is expected to grow more slowly over the next three years as technology is used to drive productivity in a more challenging labour market.
Nick Gomer continues: “This report demonstrates how geographical imbalances not only remain within the UK economy, but are actually widening at a local level within regions. With smaller places more vulnerable to economic downturns it is critical that we start to develop policy now to drive greater balance and security in economic activity across the whole of the UK.
“This is an opportunity for geographic rebalancing to an extent, but the national approach to geographical rebalancing must identify how to ensure that smaller cities and towns, and the more remote parts of regions, can benefit from the success of the faster-growing cities. Improving connectivity, both physical and digital, will be critical in ensuring the economy is one in which everyone has a chance to participate fully, regardless of location.”
EY is a global leader in assurance, tax, transaction and advisory services. With over 400 employees in our Cambridge and Luton offices, our teams provide a range of services to a variety of sectors, including manufacturing, life sciences, consumer products and retail, technology, real estate and construction, health, and the public sector. The broad array of companies across the East allows us to bring real, relevant and key insights to our clients.