York Economic Outlook 2019 YORK ECONOMIC OUTLOOK ECONOMIC OUTLOOK AND SCENARIO RESULTS FOR THE YORK ECONOMY December 2019 York Economic Outlook 2019 ABOUT OXFORD ECONOMICS Oxford Economics was founded in 1981 as a commercial venture with Oxford University’s business college to provide economic forecasting and modelling to UK companies and financial institutions expanding abroad. Since then, we have become one of the world’s foremost independent global advisory firms, providing reports, forecasts and analytical tools on more than 200 countries, 250 industrial sectors, and 7,000 cities and regions. Our best-in-class global economic and industry models and analytical tools give us an unparalleled ability to forecast external market trends and assess their economic, social and business impact. 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Our worldwide client base now comprises over 1,500 international organisations, including leading multinational companies and financial institutions; key government bodies and trade associations; and top universities, consultancies, and think tanks. DECEMBER 2019 All data shown in tables and charts are Oxford Economics’ own data, except where otherwise stated and cited in footnotes, and are copyright © Oxford Economics Ltd. This report is confidential to City of York Council and may not be published or distributed without their prior written permission. The modelling and results presented here are based on information provided by third parties, upon which Oxford Economics has relied in producing its report and forecasts in good faith. Any subsequent revision or update of those data will affect the assessments and projections shown. To discuss this report further, please contact: Kerry Houston: [email protected] Hannah Martin: [email protected] Oxford Economics 4 Millbank, London SW1P 3JA Tel: +44 1865 268 900 1 York Economic Outlook 2019 TABLE OF CONTENTS 1. Introduction ................................................................................................. 3 2. York’s economic growth .............................................................................. 4 2.1 UK-wide economic growth .................................................................... 4 2.2 York’s economic outlook ....................................................................... 6 3. York’s labour market ................................................................................. 10 3.1 Employment growth: a sectoral analysis ............................................. 11 4. York’s population and migration................................................................. 13 5. Update since the 2015 report .................................................................... 16 5.1 Changes in the landscape since 2015................................................. 16 5.2 Changes to the York forecasts ............................................................ 17 6. Scenario update: reprofiled sectoral growth ............................................... 21 6.1 Scenario results.................................................................................. 21 Appendix A: Model overview ......................................................................... 23 Appendix B: Data sources ............................................................................. 25 ..................................................................................................................... 30 2 York Economic Outlook 2019 1. INTRODUCTION The City of York Council commissioned Oxford Economics to provide an Economic Outlook and Scenario report for the City of York economy. This report sets out Oxford Economics November 2019 long term forecasts for York and compares these to forecasts prepared by Oxford Economics in 2015. The analysis also describes the implications of a “reprofiled scenario”, under which: • employment in the private business services sectors (professional, scientific & technical services, information & communication, and financial & insurance services) would grow at a faster rate to 2038, compared with our baseline outlook; while • jobs growth in the wholesale & retail, and accommodation & food sectors would slow over the period to 2038, compared with baseline. The 2015 results were used to underpin the City of York Local Plan. The Plan is currently being examined and the aim of the update is to understand the current outlook for York and access whether there has been a significant change to the forecast since the Local Plan was produced. The report is structured as follows: • In Chapter 2, we provide an analysis of the current status of the York economy, including a summary of our baseline forecasts out to 2038. This includes comparisons with both the Yorkshire & Humber region, and the UK as a whole. • In Chapter 3, presents the employment forecast for York and includes analysis on sectoral composition of growth. • In Chapter 4, sets out the population and migration outlook for York. • In Chapter 5, we compare our new baseline forecasts with that produced in 2015, summarise the changes to our key assumptions, and offer our assessment of how Brexit will impact the York economy. • Then in Chapter 6, we present our reprofiled growth scenario for York up to 2038. 3 York Economic Outlook 2019 2. YORK’S ECONOMIC GROWTH This chapter provides an overview of York’s economy, focusing on its annual Gross Value Added (GVA) growth. Throughout, comparisons are drawn between City of York, the wider Yorkshire & Humber region, and the UK as a whole. 2.1 UK-WIDE ECONOMIC GROWTH 2.1.1 The short-term outlook We begin by setting out the wider macroeconomic conditions to understand the context within which the York forecasts are derived. The UK has experienced unstable growth to date in 2019, with gains achieved in Q1 (0.6% as a result of stockpiling in anticipation of the first Brexit deadline) partly cancelled out by a contraction of 0.2% in Q2—likely due to firms using up these stockpiled resources following the extension to the Brexit deadline. The preliminary estimate for Q3 2019 reports growth of 0.3%, but with falling output in both August and September. Business survey data is also weak, with many companies citing low confidence due to the current political uncertainties (although the retail sector has performed better than the wider economy). The UK economy is currently facing major uncertainties both because of the impending General Election on December 12th, and as negotiations continue regarding how the UK will leave the EU. Overall, we estimate that UK GVA growth in 2019 will be just 1.2%, slowing to 1.0% in 2020—the country’s weakest annual growth since 2009. We do, however, expect to see a slight increase in momentum over the course of 2020, as the incoming government implements a looser fiscal policy and a strengthening of household spending power. While the outlook for the UK is far from certain, we expect the Conservative Party to win a majority in the upcoming election. This will pave the way for the Prime Minister, Boris Johnson, to pass his Brexit deal through parliament, thereby lowering (but not eliminating) the risk of a no-deal Brexit. 2.1.2 The key drivers of UK economic growth Our forecast is contingent on an orderly departure from the EU in early 2020, and shaped by the following key short-term drivers: • Improving household spending power: a simultaneous pick-up in wage growth and a cooling in inflationary pressures has seen household spending power strengthen over the past year. And while there is increasing evidence that the UK’s labour market strength is fraying—meaning that wage growth is expected to stabilise at just above 3%—inflation is likely to continue to slow, helped by the recent appreciation of sterling. This means that spending power should strengthen further through 2020, also boosted by the end of the four-year freeze on welfare benefits. Overall, we forecast UK consumer spending to grow by 1.2% in both 2019 and 2020, with quarterly growth 4 York Economic Outlook 2019 picking up steadily next year as inflation slows. • Looser fiscal stance: we estimate that fiscal policy exerted a 0.8 percentage point drag on economic growth in the last fiscal year. In 2019/20, however, higher NHS spending and generous increases in income tax thresholds mean the fiscal stance will be modestly supportive of growth. The Chancellor, Sajid Javid, announced a further loosening of the fiscal stance in September’s Spending Round, with real day-to-day spending set to grow by 4.1% in fiscal year 2020-21 (a 15-year high). Indeed, fiscal policy is a source of upside risk to our forecasts, with evidence from the early stages of the election campaign suggesting