Yorkshire and the Humber’s economy was the least affected by the initial economic impact of the pandemic, according to EY’s latest Regional Economic Forecast.
By the end of 2021, the region’s economy, measured by Gross Value Added (GVA), had recovered to 98.8% of its 2019 size – the fastest regional recovery, followed by the North East (98.5%). By contrast, the UK’s GVA had recovered to 97% of its pre-pandemic size.
The region’s lead relative to other parts of the UK is forecast to shrink, however, with Yorkshire and the Humber’s GVA set to grow 8.8% relative to its pre-pandemic size by 2025 – ahead of the UK average of 8.3% but behind the East Midlands (up 9.5%), the South West (9%) and London (8.9%).
On an annual basis, Yorkshire and the Humber will be the second slowest growing region over the 2022-25 period, expanding by 2.4% on average each year, ahead of the North East (2.3%). This is behind the average annual UK GVA growth of 2.8%.
Employment across Yorkshire and the Humber is forecast to rise by 0.8% each year between 2022-2025, the second lowest UK regional or national increase, in line with Wales (0.8%) and behind only the North East (0.7%). By contrast, London is forecast to see the largest employment increase (1.3%), followed by the South East and East of England (both 1.1%).
Leeds and Harrogate to bounce back after a slow start
The report also highlights the growing gap between the UK’s towns and cities. However, Yorkshire and the Humber has deviated from this trend with Leeds seeing its GVA fall by the equivalent of 0.8% per year from 2019-21 – while the region’s towns saw their GVA fall by 0.5% per year over the same period.
Looking ahead though, Leeds is forecast to bounce back between 2022-25 with annual GVA growth of 2.7%, in line with Harrogate (2.7%) and followed by Barnsley and Sheffield (both 2.6%). Leeds’ favourable outlook is underpinned by a supportive mix of sectors and gains in the administrative & support service and professional, scientific & technical sectors.
Meanwhile, Hull is likely to experience the region’s lowest average annual GVA growth between 2022-25 at 2.1%, underperforming the regional average (2.4%) and behind Bradford and Rotherham (both 2.2%).
Across Yorkshire and the Humber, York is predicted to experience the highest employment growth to 2025 at 1.1% per year. This growth will come predominantly across the human health & social work and wholesale & retail trade sectors.
Suzanne Robinson, Yorkshire and Humberside managing partner, said: “It is promising to see Yorkshire and the Humber’s economy proved so durable during the pandemic, supported by a combination of the region’s resilient manufacturing sector and robust growth in health-related services.
“Looking ahead, the recent progress towards establishing one of the country’s first two carbon capture utilisation and storage (CCUS) developments here in the region establishes a path towards green economic recovery and an increasingly dynamic future for the Yorkshire and Humber economy.
“Across the country, action is needed to ensure the recovery is balanced. It’s important other parts of the country are not be left behind London once again, and steps are taken to combat inequality – both between regions and within them.”
COVID-19 squeezes regional inequality – but only temporarily
The COVID-19 pandemic has helped to narrow the UK’s regional economic divide, but the gap between London and the rest of the country is set to grow again during the post-pandemic recovery, the report finds.
When measured by Gross Value Added (GVA), London’s economic activity dipped 3.6% from 2019 to 2021, compared to a slightly smaller 3% average decline for all UK regions. But, between 2021 and 2025, London’s GVA is forecast to grow by 3.1% per year compared to annual average growth of 2.8% across the UK. Only the East Midlands and South West are currently expected to gain any ground on London over the next three years compared to their pre-pandemic performance – although the capital is on course to pull ahead again after 2025.
London’s forecasted dominance is even more apparent in the labour market, with the capital one of just four UK regions (out of 12) expected to see its working age population grow – by 4.7% – between 2021 and 2025. London is predicted to regain or exceed its pre-pandemic share of UK employment (30.9%) and GVA (39.1%) in 2025 too.
Rohan Malik, EY’s UK&I managing partner markets & accounts, says: “The structural forces driving UK regional economic inequality are deep-rooted and are unlikely to be reversed overnight. Long-term ambitions and sustained, coordinated action are needed to balance growth across the country while ensuring that ‘levelling up’ isn’t simply moving activity elsewhere at London’s expense. The right actions now will bear fruit eventually, but policymakers need to be in this for the long haul.
“Greater flexibility on where people work, aided by the pandemic, could help things. Focusing on what attracts people and businesses to a region, attracting the right mix of sectors and job opportunities, and tackling issues that affect quality of life will be key to taking advantage of this. Retaining young, aspirational talent matters: Manchester, for example, has one of the highest graduate retention rates of all UK cities – and it’s expected to be the UK’s fastest growing city between 2022 and 2025.
“As previous EY research has shown, the UK’s Net Zero and levelling up ambitions go hand-in-hand: the billions of pounds of investment required to reach Net Zero present a golden opportunity to transform not only the environmental sustainability of the UK economy, but its regional balance too. The manufacturing and utilities sectors, for example, are key to the Net Zero agenda – and they are vital to regional economies.”
East Midlands forecast to thrive, but the West Midlands recovery will be slower
All English regions are expected to have regained their pre-pandemic level of GVA by the end of 2023, with only the West Midlands still below its pre-pandemic size by the end of 2022. Twenty per cent of areas in England recovered to their pre-pandemic GVA levels by the end of 2021 – the fastest to do so being digital and science-friendly Reading (where GVA is already 4% above its 2019 level); manufacturing-reliant Solihull (where GVA is still 9% below its 2019 level) is farthest from its 2019 performance.
In a sign of the impact of the pandemic-driven acceleration of changes in the way consumers shop, Lichfield, despite its West Midlands location, is forecast to be England’s best-performing town between 2022 and 2025. From 2023, the town will be home to a new global fulfilment centre for an online retailer and is expected to see its GVA grow 3.6% per year.
Across the UK, service and city centre activities are expected to be the fastest growing between 2022 and 2025, with accommodation and food service expected to improve its GVA by 8.6% per year, followed by other services (up 6.7%), administrative and support services (up 5.5%), and arts and entertainment (up 5.4%). The transportation and storage sector is expected to grow 3.8% per year. By contrast, manufacturing is one of the sectors expected to undershoot the overall annual UK GVA growth (2.8%), with 1.7% growth forecast.
