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The economic performance of ’s regions UK Regional Economic Forecast December 2020

UK Regional Economic Forecast — December 2020 1 ey.com/uk/regionalforecast Contents

Introduction 01

Regional focus 02

1 North East 03 Introduction 2 North West 04 3 and the 05 We are very pleased to share our sixth economic forecast Despite the challenging outlook, there is opportunity. East 06 for England’s regions, cities and towns. As a nationwide Although COVID-19 delivered a huge economic and health 4 employer, committed to supporting efforts to rebalance the cost, the response to the pandemic showed us that there country’s economic geography, our forecasts are designed are alternative ways to organise our economic and social to help broaden understanding and to advance the debate. activities. With our research showing that both businesses 07 We will be working with our colleagues across the country and consumers are aware of the opportunities which 5 to share the detailed findings with local stakeholders. change offers, and are keen to explore them, we believe there is a unique opportunity to transform England’s 08 As we reach the end of 2020, the launch of a vaccination economy and move to the Next Level — a more prosperous 6 programme points to light at the end of the tunnel. This and balanced economy. This document is intended to give is reflected in our economic forecast, with the EY ITEM details of the regional performance. Click here to download Club projecting a return to growth in 2021. However, South East 09 the forecast in full where, we identify the key steps the consequences of the shock delivered by COVID-19 required to make this vision a reality. 7 will remain with us for some time. This is particularly true in respect of the Government’s ambition to level up We firmly believe in the potential of ‘levelling up’ and South West 10 the economy, and our forecast suggests that on current are committed to supporting attempts to maximise the 8 trends, the gap between the North and South of the opportunities and performance in all parts of the country. country is likely to widen over the next three years, and We look forward to the opportunity to share and develop 9 11 cities are expected to pull further away from towns. our ideas with you.

Contact us 12

Notes 13

Definitions 14

Rohan Malik Mark Gregory UK&I Managing Partner — UK Chief Economist, Government and Infrastructure, Ernst & Young LLP Ernst & Young LLP

2 UK Regional Economic Forecast — December 2020 UK Regional Economic Forecast — December 2020 1 ey.com/uk/regionalforecast

1 Regional North East

focus • According to the latest Purchasing Employment structure: North East vs UK (excl. London), 2019 Managers’ Index (PMI), output in the North East increased for the fourth Human health and social work consecutive month in October 2020. Public administration However, like the rest of the UK, the pace Manufacturing of this growth has slowed since August. Education • Labour market data has been fairly Accommodation and food service mixed for the North East. The total Other service activities Real estate activities Small relative Large relative number of workforce jobs rose by 0.9% to UK excl. to UK excl. Information and communication over the year to June 2020, despite a London London 0.7% contraction nationally. However, Financial and insurance activities the more timely Labour Force Survey Construction (LFS) reports that employment fell by Arts, entertainment and recreation 0.8% in the quarter to September 2020 Administrative and support service compared with the same period a year Transportation and storage earlier — this contraction was broadly in Utilities, extraction and agriculture line with that of the UK. The region also Wholesale and retail trade recorded a rise in the unemployment Professional, scientific and technical rate over the same period, up to 6.7% -2.5 -1.5 -0.5 0.5 1.5 2.5 of the population aged 16 and above Source: EY ITEM Club Percentage point difference from 5.9%. • The North East recorded the weakest GVA growth: North East vs UK (excl. London), 2020-23 growth house prices in the 12 months to August 2020, growing by 0.2% Utilities, extraction and agriculture compared to 2.5% nationally. Financial and insurance activities • The North East will be among the Accommodation and food service weakest performing regions over the Other service activities period 2020-23, with GVA contracting Wholesale and retail trade by 0.3% on average each year. Public administration Employment is expected to decline Transportation and storage Slow relative Fast relative to UK excl. to UK excl. by 0.4% each year as job losses in the Arts, entertainment and recreation London London region’s manufacturing sector hinder Education overall employment growth. Human health and social work Manufacturing Construction Administrative and support service Information and communication The North East will be Professional, scientific and technical among the weakest Real estate activities performing regions over -0.7 -0.2 0.3 the period 2020-23 Source: EY ITEM Club Percentage point difference

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2 3 North West

• The latest survey data from the PMI Employment structure: North West vs UK (excl. London), 2019 • The latest PMI data shows that growth Employment structure: Yorkshire and the Humber vs UK suggests that the North West’s economy in Yorkshire and the Humber’s economy (excl. London), 2019 Wholesale and retail trade continued to grow in October 2020, slowed in October 2020 however, the Manufacturing Professional, scientific and technical although the rate of growth has started region still experienced growth above Education Transportation and storage to slow. UK average. Transportation and storage Administrative and support service • Recent labour market data has been • Recent employment data has been Administrative and support service Manufacturing relatively weak. Total workforce jobs in positive for Yorkshire and the Humber. Financial and insurance activities the North West fell by 1.5% over the year Other service activities Workforce jobs reports a 0.9% rise Small relative Large relative Accommodation and food service Real estate activities Small relative Large relative to June 2020, more than twice the rate to UK excl. to UK excl. in the 12 months to June 2020, the Public administration Financial and insurance activities to UK excl. to UK excl. of contraction reported across the UK. London London strongest performance observed across Information and communication Human health and social work London London The more timely LFS indicates further the regions. The more timely LFS data Arts, entertainment and recreation Accommodation and food service decline in the quarter to September records that employment also grew Real estate activities Public administration 2020 compared with the previous year, in the quarter to September 2020 Human health and social work Arts, entertainment and recreation with employment declining by 6,000, compared with a year previous, Wholesale and retail trade Education coinciding with a 0.4 percentage point rising by an additional 0.5%. Despite Other service activities Construction rise in the unemployment rate to 5.9% of increasing employment, a rise in the Utilities, extraction and agriculture Information and communication the population aged 16 and above. unemployment rate was also recorded Professional, scientific and technical Utilities, extraction and agriculture • Despite the poor performance of the over the same period. Construction labour market, house price growth in the -0.9 -0.4 0.1 0.6 1.1 1.6 • The region’s strong employment -1.1 -0.6 -0.1 0.4 0.9 1.4 1.9 North West has been among the highest Source: EY ITEM Club Percentage point difference performance helped to support house Source: EY ITEM Club Percentage point difference across the UK regions in the 12 months prices, with prices increasing by 2.7% to August 2020, rising by 3.5% compared in the 12 months to August 2020 and to 2.5% nationally. GVA growth: North West vs UK (excl. London), 2020-23 outpacing the UK (2.5%). GVA growth: Yorkshire and the Humber vs UK (excl. London), 2020-23 • Our GVA and employment growth Real estate activities • GVA growth in Yorkshire and the Information and communication forecasts for the North West match the Professional, scientific and technical Humber is forecast to lag the UK Financial and insurance activities UK over the 2020-23 period, growing at Administrative and support service between 2020 and 2023, contracting Public administration an average of 0.1% and -0.1% per year Construction by 0.2% annually compared with 0.1% Human health and social work respectively. The professional, scientific Accommodation and food service average growth nationally. Despite Accommodation and food service and technical and wholesale and retail Wholesale and retail trade the overall contraction, human health Education sectors will be the most dynamic in the Manufacturing Slow relative Fast relative and social work and information and Wholesale and retail trade Slow relative Fast relative to UK excl. to UK excl. to UK excl. to UK excl. region — the latter benefitting in the Transportation and storage communication are forecast to be the Manufacturing London London London London near-term from pent-up demand. Arts, entertainment and recreation most dynamic over this period. Arts, entertainment and recreation Other service activities Transportation and storage Utilities, extraction and agriculture Utilities, extraction and agriculture Public administration Other service activities Financial and insurance activities Real estate activities Human health and social work Administrative and support service Total workforce jobs in Education Recent employment Construction the North West fell by Information and communication data has been Professional, scientific and technical 1.5% over the year to -0.3 -0.1 0.1 0.3 0.5 positive for Yorkshire -0.8 -0.6 -0.4 -0.2 0.0 0.2 June 2020 Source: EY ITEM Club Percentage point difference and the Humber Source: EY ITEM Club Percentage point difference

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4 5 West Midlands

• Following record growth in September Employment structure: East Midlands vs UK (excl. London), 2019 • The latest survey evidence from the Employment structure: West Midlands vs UK (excl. London), 2019 2020, output growth in the East PMI shows that output growth in the Midlands slowed significantly in October Manufacturing West Midlands has begun to slow, with Manufacturing according to the latest PMI data. Wholesale and retail trade growth falling below the UK average in Transportation and storage • The latest labour market data has been Other service activities October 2020. Wholesale and retail trade relatively weak for the East Midlands. Transportation and storage • The latest labour market data is also Real estate activities Whilst total workforce jobs remained Arts, entertainment and recreation less favourable. Workforce jobs fell Education broadly flat in in the 12 months to June Education by 2.5% in the year to June 2020, Other service activities Utilities, extraction and agriculture Small relative Large relative Construction Small relative Large relative 2020, the more timely LFS suggests a to UK excl. to UK excl. the joint largest regional contraction to UK excl. to UK excl. Administrative and support service Financial and insurance activities weakening picture for the region, with a London London reported alongside the South East. The London London 1.8% contraction reported in the quarter Real estate activities more timely LFS supports this story of Human health and social work to September 2020 compared with a Information and communication weak performance, with a contraction Administrative and support service year earlier. This was accompanied by a Construction of 1.4% in the quarter to September Utilities, extraction and agriculture rise in the unemployment rate to 4.9% of Accommodation and food service 2020 compared with a year earlier. Information and communication the population aged 16 and above. Human health and social work Over the same period, unemployment Arts, entertainment and recreation • House prices in the East Midlands Public administration rose by 24,000, bringing the Professional, scientific and technical reported the fastest rate of growth in the Financial and insurance activities unemployment rate up to 4.9% of Public administration 12 months to August 2020, rising by Professional, scientific and technical the population aged 16 and above, Accommodation and food service -1.5 -0.5 0.5 1.5 2.5 3.6% and outpacing the UK (2.5%). marginally above the UK (4.8%). -2.5 -1.5 -0.5 0.5 1.5 2.5 • GVA in the East Midlands is expected Source: EY ITEM Club Percentage point difference • While house prices in the West Source: EY ITEM Club Percentage point difference to remain broadly flat over the next Midlands rose in the year to August four years, lagging marginally behind 2020, their pace of growth (2.3%) GVA growth: East Midlands vs UK (excl. London), 2020-23 GVA growth: West Midlands vs UK (excl. London), 2020-23 the 0.1% growth forecast nationally. lagged marginally behind that of the The outlook for employment is slightly Transportation and storage UK (2.5%). Utilities, extraction and agriculture weaker, with a 0.1% contraction Real estate activities • The GVA outlook for the West Midlands Manufacturing expected, in line with the UK. Job losses Construction is among the weakest across the UK, Transportation and storage in the region’s sizeable manufacturing Information and communication with a 0.3% contraction expected Public administration sector will offset growth in other sectors. Human health and social work between 2020 and 2023. The region’s Other service activities Public administration high reliance on manufacturing leaves Human health and social work Education Slow relative Fast relative its economy particularly exposed to Financial and insurance activities Slow relative Fast relative to UK excl. to UK excl. to UK excl. to UK excl. Administrative and support service related trade frictions. Education London London London London Arts, entertainment and recreation Wholesale and retail trade Professional, scientific and technical Arts, entertainment and recreation Accommodation and food service Accommodation and food service Financial and insurance activities Information and communication Wholesale and retail trade Professional, scientific and technical GVA in the East Midlands Other service activities The GVA outlook for Administrative and support service is expected to remain Manufacturing the West Midlands is Construction Utilities, extraction and agriculture Real estate activities broadly flat over the among the weakest -0.3 -0.1 0.1 0.3 0.5 -0.7 -0.5 -0.3 -0.1 0.1 0.3 next four years Source: EY ITEM Club Percentage point difference across the UK Source: EY ITEM Club Percentage point difference

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6 7 East of England South East

• The East of England experienced the Employment structure: East of England vs UK (excl. London), 2019 • Despite growth slowing marginally Employment structure: South East vs UK (excl. London), 2019 fastest increase in economic between September and October, the activity in September 2020 according Professional, scientific and technical South East experienced the strongest Information and communication to the latest PMI survey results. Administrative and support service growth in economic activity in October Professional, scientific and technical • However, the latest labour market data Transportation and storage 2020 according to the latest PMI. Administrative and support service for the region suggests weakening Construction • The latest labour market data has Education conditions. Over the year to June Education been particularly weak. Workforce jobs Construction 2020, workforce jobs contracted by Real estate activities contracted by 2.6% over the year to Arts, entertainment and recreation Information and communication Small relative Large relative Wholesale and retail trade 0.8%, equating to around 25,000 job to UK excl. to UK excl. June 2020, the weakest regional Small relative Large relative Utilities, extraction and agriculture Financial and insurance activities losses. Furthermore the more timely London London performance alongside the West to UK excl. to UK excl. LFS data reports a 0.6% decline over Financial and insurance activities Midlands. The more recent LFS data Other service activities London London the quarter to September 2020 against Arts, entertainment and recreation shows a 1.5% contraction in the quarter Real estate activities a year pervious. This contraction in Wholesale and retail trade to September 2020 compared with Transportation and storage employment was accompanied by Other service activities a year previous, almost twice the Accommodation and food service a 1.1 percentage point rise in the Accommodation and food service rate of decline reported nationally. Utilities, extraction and agriculture unemployment rate to 4.3% of the Public administration The unemployment rate has risen 1 Public administration population aged 16 and above. Manufacturing percentage point over this period but Human health and social work • House prices in the East of England Human health and social work one remains one of the lowest at 4.1% of Manufacturing -2.0 -1.0 0.0 1.0 2.0 3.0 have grown by 2.0% over the year the population aged 16 and above. -3.0 -2.0 -1.0 0.0 1.0 2.0 to August 2020, lagging marginally Source: EY ITEM Club Percentage point difference • Despite the poor performance of the Source: EY ITEM Club Percentage point difference behind that of the UK (2.5%). labour market, house prices have • Employment and output in the East risen 2.9% in the year to August 2020, GVA growth: East of England vs UK (excl. London), 2020-23 GVA growth: South East vs UK (excl. London), 2020-23 of England are forecast to mirror the outpacing national growth (2.5%). national average over the next four Human health and social work • Growth within the South East is forecast Real estate activities years. GVA is expected to expand at Utilities, extraction and agriculture to outpace the national average. Wholesale and retail trade an average annual rate of 0.1%, whilst Public administration Employment in the region is forecast Accommodation and food service employment is forecast to contract by Arts, entertainment and recreation to expand by an annual average of Other service activities 0.1% per year. Education 0.1% between 2020 and 2023. Solid Arts, entertainment and recreation Wholesale and retail trade performances in the information and Construction Accommodation and food service Slow relative Fast relative communications and professional Administrative and support service to UK excl. to UK excl. Information and communication sectors are expected to support GVA Human health and social work Fast relative London London to UK excl. Financial and insurance activities growth of 0.4% per year. Professional, scientific and technical London Manufacturing Education The East of England Other service activities Information and communication experienced the second Professional, scientific and technical Manufacturing fastest increase in Transportation and storage Financial and insurance activities Construction Utilities, extraction and agriculture economic activity Administrative and support service Growth within the Transportation and storage in September 2020 Real estate activities South East is forecast Public administration according to the latest -0.4 -0.2 0.0 0.2 0.4 to outpace the 0.0 0.2 0.4 PMI survey results Source: EY ITEM Club Percentage point difference national average Source: EY ITEM Club Percentage point difference

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8 9 South West London

• The latest PMI shows that following Employment structure: South West vs UK (excl. London), 2019 • According to the PMI, London followed a Employment structure: London vs UK (excl. London), 2019 three months of growth, economic similar trend to the UK as a whole, with activity in the South West declined Accommodation and food service three months of solid output growth Professional, scientific and technical marginally in October 2020. Construction from July to September 2020 followed Information and communication • Recent labour market data has also Public administration by a slowdown in October 2020. Financial and insurance activities been weak. Workforce jobs in the South Arts, entertainment and recreation • The latest labour market data was Administrative and support service West fell by 0.8% in the 12 months Human health and social work mixed. Workforce jobs in London Real estate activities to June 2020. The more timelier Utilities, extraction and agriculture rose by over 13,000 over the year Accommodation and food service Real estate activities Small relative Large relative Arts, entertainment and recreation Small relative Large relative LFS data shows a 4.0% contraction to UK excl. to UK excl. to June 2020, equating to a 0.2% to UK excl. to UK excl. Professional, scientific and technical Other service activities in total employment in the quarter to London London rise against a backdrop of a 0.7% London London September 2020 compared with a year Other service activities decline nationally. The LFS shows a Public administration previous. This is the largest regional Financial and insurance activities 2.0% increase in employment for the Transportation and storage contraction reported. Similarly the Information and communication quarter to September 2020 compared Education unemployment rate experienced the Education with a year previous — the highest Construction largest regional increase over this Manufacturing percentage increase across all regions. Utilities, extraction and agriculture period, rising from 2.6% to 4.1% of the Wholesale and retail trade The unemployment rate rose by 1.4 Human health and social work population aged 16 and above. Transportation and storage percentage points to 6.0% of the Wholesale and retail trade • Despite the weak labour market, house Administrative and support service population aged 16 and above, the Manufacturing prices have risen 2.5% in the year to -2.0 -1.0 0.0 1.0 2.0 second highest regional change. -8.0 -6.0 -4.0 -2.0 0.0 2.0 4.0 6.0 8.0 August 2020, matching the national Source: EY ITEM Club Percentage point difference • London’s house prices increased by Source: EY ITEM Club Percentage point difference rate of growth. 3.5% in the year to August 2020, • GVA and employment growth in the placing the region as one of the GVA growth: South West vs UK (excl. London), 2020-23 GVA growth: London vs UK (excl. London), 2020-23 region is forecast to lag behind the strongest across the UK. UK average over the next four years. Transportation and storage • London is expected to remain the Other service activities Output in the South West is forecast Human health and social work fastest growing region in the UK in Wholesale and retail trade to contract at an average annual rate Financial and insurance activities terms of both GVA and employment. Utilities, extraction and agriculture of 0.2%, while employment is forecast Public administration Employment in the region is forecast to Accommodation and food service to fall by 0.4% per year. The region’s Education increase at an average annual rate of Education hospitality sector acts as a significant Utilities, extraction and agriculture 0.3% over the next four years, with GVA Administrative and support service drag on growth, particularly in the Professional, scientific and technical Slow relative Fast relative forecast to grow by 0.5% per year over Public administration Slow relative Fast relative to UK excl. to UK excl. to UK excl. to UK excl. near-term. Administrative and support service the same period. Information and communication London London London London Real estate activities Professional, scientific and technical Information and communication Arts, entertainment and recreation Other service activities Human health and social work Despite the weak labour Construction Financial and insurance activities market, house prices Accommodation and food service London is expected Real estate activities Arts, entertainment and recreation Construction have risen 2.5% in the Wholesale and retail trade to remain the fastest Transportation and storage year to August 2020, Manufacturing growing region in the UK Manufacturing matching the national -0.9 -0.7 -0.5 -0.3 -0.1 0.1 0.3 in terms of both GVA and -0.6 -0.3 0.0 0.3 0.6 rate of growth Source: EY ITEM Club Percentage point difference employment Source: EY ITEM Club Percentage point difference

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Contact us Notes on data and forecast assumptions

The forecasts presented in this report are Key data definitions used produced using the Economics Local in this report: Authority District Forecasting Model, but are fully consistent with the EY ITEM Club Interim • Total employment is jobs-based, Forecast (November 2020). including employees in employment, self-employed, Her Majesty’s Forces and government-supported trainees; The forecasts depend essentially upon • GVA data is presented in 2018 prices three factors: and excludes output from the ‘extra • National outlooks. region’; i.e., the contribution of Stephen Church Suzanne Robinson Michael Scoular Simon O’Neill • Historical trends in an area augmented and gas extraction, UK North West Yorkshire and Humberside North East Midlands embassies, and UK forces stationed Senior Partner Senior Partner Senior Partner Senior Partner by local knowledge and understanding of patterns of economic development, built up overseas. The latter are included in over decades of expertise. the GDP definition used in the EY [email protected] [email protected] [email protected] [email protected] macroeconomic forecasts. • Fundamental economic relationships which interlink the various elements of the outlook. • Labour force unemployment is the official unemployment measure, The forecasts are demand-based, and assume referring to jobless people who want no supply-side constants. They also assume the to work, are available to work and are continuation of existing government policies, actively seeking work. and those currently announced. While the UK • Any reference to workforce jobs in the Government does not have a specific regional regional focus slides relates to employee policy, some enterprise support is allocated jobs rather than total workforce jobs, locally, and infrastructure decisions clearly given the volatility of the regional self- have regional implications. The devolved employment data. administrations have their own responsibilities • The forecast period 2020-23 is a four in these areas, which causes some differences in year forecast, including growth in 2020, policies and priorities. 2021, 2022 and 2023. Richard Baker Andrew Perkins Caroline Artis • The analysis in this report is based on Thames Valley and South West London published data available on or before South Coast Senior Partner Senior Partner Senior Partner 19 November 2020.

[email protected] [email protected] [email protected]

12 UK Regional Economic Forecast — December 2020 UK Regional Economic Forecast — December 2020 13 ey.com/uk/regionalforecast

Definitions

Newcastle LA Bristol LA Wigan LA Torbay LA Liverpool LA Exeter LA LA Windsor and Manchester LA City Region Trafford LA Maidenhead Windsor and Maidenhead LA Kingston upon Hull UA LA Hartlepool Hartlepool LA Slough LA Leeds LA Bassetlaw LA Stockton-on-Tees Stockton-on-Tees LA Basingstoke and Deane Basingstoke and Deane LA Birmingham LA LA Darlington Darlington LA Boston Boston LA Stoke-on-Trent Stoke on Trent UA Chesterfield LA Durham CC Durham CC LA Mansfield LA Cambridge LA Dales LA Sunderland Sunderland LA Worcester Worcester LA Luton LA LA Blackburn Lichfield LA Reading Reading UA LA with Darwen LA Rugby Rugby LA Southampton UA Rotherham LA Blackpool LA Redditch Redditch LA South Coast UA Sheffield LA Lancaster Lancaster LA Wigan Wigan LA UA Portsmouth UA Chorley Chorley LA Preston Preston LA Test Valley LA Oxford Oxford LA Warrington LA Rochdale Rochdale LA Southampton UA Kingston upon Hull, Combined Authority Halton LA City of Kingston upon Hull, City of LA Carlisle Carlisle LA New Forest LA Knowsley LA York LA Barnsley Barnsley LA Eastleigh LA Liverpool LA Sheffield Sheffield LA Doncaster Doncaster LA Winchester LA Sefton LA Bradford Bradford LA Harrogate Harrogate LA Fareham LA St Helens LA Wakefield Wakefield LA Rotherham Rotherham LA Gosport LA Wirral LA Derby LA Guildford Guildford LA East Hampshire LA Milton Keynes Milton Keynes UA Nottingham LA Winchester Winchester LA Havant LA Sunderland Sunderland LA Leicester LA Taunton Deane Taunton Deane LA Portsmouth UA West Midlands Telford and Wrekin LA Stroud Stroud LA UA Combined Authority Birmingham LA Solihull LA Middlesbrough Middlesbrough LA Thames Valley UA LA Coventry Coventry LA Norwich LA Reading UA Dudley LA Dudley Dudley LA Windsor and Maidenhead UA Sandwell LA Sandwell Sandwell LA Wokingham UA Solihull LA Walsall Walsall LA Slough UA Walsall LA Wolverhampton LA UA Wolverhampton LA Peterborough LA Basingstoke and Deane LA Greater Manchester Manchester LA Bedford Bedford LA Hart LA Stockport LA Southend-on-Sea Southend-on-Sea LA Rushmoor LA Tameside LA Brighton and Hove LA Cherwell LA Oldham LA Swindon Swindon LA West Oxfordshire LA UA = Rochdale LA Bournemouth Bournemouth LA Oxford LA LA = Local Authority District Bury LA Poole Poole LA Vale of White Horse LA CA = Council Area Bolton LA Plymouth LA South Oxfordshire LA

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