The East of England is set to be one of the country’s best performing regions for economic growth between 2024-26, as the UK economy continues to recover from the COVID-19 pandemic, according to EY’s latest Regional Economic Forecast.
When measured by Gross Value Added (GVA), the region’s economy is set to grow by an average of 2.1% each year between 2024-26, on par with the predicted average UK growth for the same period. Peterborough is forecast to be the fastest growing location in the East of England over 2024-26, with forecast annual average growth of 2.2%, closely followed by Cambridge at 2.0%. Bedford (1.7%) and Luton (1.7%) are forecast to be the slowest growing areas in the region.
Relative to London, the East of England’s economic performance is set to be boosted by the strength of its knowledge-based sectors, according to the report. The region’s key growth sectors are forecast to include the information and communications sector, administrative and support services, and professional services.
Economic growth within the East of England will also have a positive impact on employment levels from 2024 to 2026, with the region forecast to see average annualised employment growth of 1.4%, above the UK average of 1.3%.
The forecast 2024-26 performance would represent a turnaround on the East of England’s forecast for 2023 – GVA is expected to contract 0.7% this year, which is slightly deeper than the 0.6% GVA contraction expected for the whole country.
Stuart Wilkinson, Managing Partner at EY in the East of England, said: “While the East of England won’t be immune to the UK’s economic challenges in 2023, the forecast beyond that looks much brighter for the region. The East of England’s sector mix is key, and the region is home to plenty of businesses in high growth, high value knowledge-based sectors, including tech, professional services and life sciences.
“A diverse economy with high-skilled jobs are among the factors that continue to make the East of England a desirable place to live and work, attracting new investment to the region from businesses from across the UK and from overseas.”
The economic gap between London and the rest of the country set to grow again
The EY Regional Economic Forecast also indicates the rising cost of living and weaker consumer spending are expected to deepen the economic divide between London and the rest of the UK.
The forecast says that UK Gross Value Added (GVA) is expected to decline 0.6% over the course of 2023, with London (-0.2%) the only part of the country predicted to see a smaller economic contraction than the UK overall. While Scotland is expected to match the overall UK GVA performance in 2023 (also contracting 0.6%), other parts of the UK are forecast to lag behind. Yorkshire and the Humber and the East Midlands are predicted to see the steepest GVA contractions, at 1% each.
Driving the contraction in UK output in 2023 are the forecast declines in services most dependent on household spending. With consumers struggling amid cost of living pressures, this year’s worst performing sectors are expected to include wholesale and retail (-3.3% GVA contraction), accommodation and food services (-2.7%), and arts, entertainment and recreation (-1.8%). Manufacturing (-2.9%), which relies on consumer spending to maintain demand, also faces challenges relating to higher input costs such as raw materials and labour, alongside increased borrowing costs.
At the other end of the spectrum, less consumer-dependent sectors like administrative and support services (0.8%) and professional services (0.1%) are expected to see some growth, while sectors like real estate (-0.2%) and financial and insurance services (-0.5%) are forecast to see smaller contractions than the rest of the economy.
Over the course of 2024-2026, UK GVA is expected to grow at an annual average 2.1%, with London growing 2.6%. As well as the East of England (2.1%), the South East (2.2%), South West (2.1%) and West Midlands (2.1%) are also forecast to outpace or match wider UK growth. Like London, the West Midlands and the South West are both expected to be boosted by strong growth in the information and communication sector, which is expected to be the UK’s fastest growing sector in the medium-term.
The pattern in GVA growth is reflected in jobs, with only London, Northern Ireland and Wales expected to perform better than the UK as a whole in 2023. Job numbers in these three areas are expected to be effectively unchanged this year, and down 0.2% across the UK. The West Midlands is forecast to trail the rest of the country, with job numbers shrinking 0.4%. London is also forecast to see the highest increase in its working age population in the medium term, with annualised growth of 1.2% between 2024 and 2026.
Rohan Malik, EY’s UK&I Managing Partner Markets & Accounts, says: “The rising cost of living is likely to exacerbate the differences in regional economic performance, widening regional inequalities and heightening the need for economic policy which spreads growth out across the UK. Levelling-up presents an opportunity to boost growth for the whole of the UK – but familiar patterns are still all too present as the economy recovers from the pandemic.
“London clearly enjoys advantages in economic resilience, skill levels, and in productivity – both in higher and lower skilled sectors. But London’s performance also offers lessons for the rest of the country. Sector composition is key for regional economic performance, for example. Regions need their own visionary sectoral growth plans that define roles for the private sector, alongside government, as investors, employers and economic agents in their regions. It’s also vital to unlock investment in skills and encourage labour retention.
“The key to nurturing a strong sector composition is investment in high value-added sectors, like advanced manufacturing and information and communication. The transition to Net Zero, for example, represents a generational opportunity to rebuild the manufacturing base, upskilling workers in new energy generation and operation capabilities across the value chain from construction of solar farms, heat networks and hydrogen pipelines to electric vehicles and charging infrastructure. A one-size fits all approach won’t work though, and regions need to understand their own strengths, weaknesses, and sub-sector opportunities.
“High value sectors won’t function without a high value workforce and, too often, regions struggle to retain and uplift their skill bases. Fixing this needs to be approached from several angles: graduate and skills retention relies not just on the development of well-paid jobs, but strategic planning on the broader set of social, environmental and structural components that determine the quality of life in a given region too.”