Yorkshire to see slower post-Covid recovery than rest of the country

15.12.20

EY’s latest Regional Economic Forecast says that the region’s economy will be one of four not expected return to its 2019 levels by 2023 (when measured by Gross Value Added). Employment in the region will also be lower by 2023 than it was in 2019.

The region’s GVA is expected to see the equivalent of an average annual decrease of 0.31% between 2019 and 2023, whilst employment is expected to decline by 0.45% a year over the same period. Despite the overall contraction, human health & social work and information & communication are forecast to be the most dynamic sectors, according to the report.

The sectoral profile of both Yorkshire and the Humber (-12.8%) and the Midlands (-13.6%), means they have seen the country’s largest GVA contractions in 2020. The regions’ large manufacturing sectors were significantly affected when many factories were forced to close as a result of the first national lockdown. Furthermore, Yorkshire and the Humber’s share of more resilient sectors is relatively low, limiting its ability to offset contraction elsewhere in its economy.

Suzanne Robinson, EY’s Office Managing partner for Yorkshire and the Humber, said:

“Manufacturing, arts and leisure, and hospitality – crucial parts of the economies in towns, and the North – have been most affected during the pandemic or are likely to take longer to recover.

“These figures highlight the importance of ensuring this region continues to work on developing a balanced and mixed economy.”

Yorkshire’s cities hit harder than most

Relative sector performance is the main explanation for differences across cities. With employment in Hospitality, Back Office Services, the Arts and Leisure and Manufacturing falling faster than the national average, cities in Yorkshire and Humberside and the Midlands were most affected due to their greater exposure to these sectors.

The cities of Sheffield, Leeds, York and Wakefield will continue to outpace the Yorkshire and Humber benchmarks, although only one of these cities will experience GVA growth to 2023 compared to 2019, according to the report.

Sheffield leads the region’s growth table with expected annual GVA growth of 0.16% between 2019 and 2023, and the information & communication and human health & social work sectors will record the biggest absolute increases in output over this period. Employment will fall slightly by -0.06% per year, led by job losses within the administrative & support service sector.

Leeds follows, albeit with a forecast change in GVA equivalent to an annual average decline -0.02% between 2019 and 2023 and an annual average decline in employment of -0.26%, again led by job losses within the administrative & support service sector. The city was particularly affected by a contraction in the provision of back office services in the lockdown, with companies continuing to automate or scale back this offering. The information & communication and human health & social work sectors will record the biggest absolute increases in output over this period.

Meanwhile York and Wakefield are predicted to see GVA change by an annual average of -0.08% and -0.27% between 2019 and 2023, respectively; with annual employment down by -0.07% and -0.36% over the period.

Across many of the region’s smaller towns the picture is less positive. Barnsley, Harrogate, Doncaster and Rotherham are expected to see GVA decline by the equivalent of an annual average of between 0.2 and 0.4% over the period, with employment falling by around 0.5% a year for all four.

The city of Hull is expected to experience the region’s greatest contraction from 2019 to 2023, with GVA expected to fall an average of 0.52% a year to 2023 from 2019, and employment is forecast to decline by 0.65% a year over the same period.

Suzanne Robinson said:

“Hull’s reliance on manufacturing – 27% of GVA compared to 10% of the UK as a whole – meant 2020 was a particularly challenging year and the figures show the sector is not expected to recover quickly.

“Leeds has also been particularly affected by this pandemic – and it will continue to feel the impact of 2020 for several years. That has had a significant effect on the region’s results as a whole, as the city has always performed relatively well in city league tables.

“Whilst Sheffield’s manufacturing sector has seen a significant contraction as a result of the pandemic, the city has otherwise faired relatively well.

“Employment has been most affected in towns where hospitality, arts and retail make up a higher share of GVA. Market towns that rely on the tourist industry – like Harrogate – have seen national lockdowns have a significant impact on their economy.”

North-South divide remains but city and town divide a problem for all the regions

Nationwide, only the South East and London are forecast to employ more people in 2023 compared to 2019. At the same time, cities are expected to outperform their regions in economic and employment growth by 2023, while no region’s towns are forecast to outpace the region overall.

When measured by GVA, the economies of just five out of nine English regions are forecast to be larger in 2023 than they were in 2019. Three of these regions are in the South: London (0.51% annual growth forecast); the South East (0.39%); and East (0.08%).

Of the four regional economies expected to be below their 2019 sizes by 2023, three are outside the South. As well as Yorkshire and Humber (equivalent to a -0.31% annual decline in GVA forecast), these are the North East (-0.29%); and West Midlands (-0.26%). The South West’s 2023 GVA is expected to be lower than 2019’s level by the equivalent of a -0.17% annual decline.

Suzanne Robinson said:

“The pandemic has put the levelling up agenda in sharp focus and this report clearly shows that is about so much more than the economies of the North catching up with the South.

“Some of the recent shifts in how we organise work and home life have been positive for economic rebalancing and mean there could be opportunities to create ‘virtual’ jobs in places that have found it difficult to attract higher value-added sectors.

“The Government’s recent initiatives, including the Levelling-up Fund and National Infrastructure Strategy, are welcome, but new approaches are required to avoid a growing gap between towns and cities, as well as North and South.

“A policy focus on supporting sectors, like manufacturing, which matter to both investors and towns would help, while the shift to ‘net zero’ can transform the economy.

“Crucially, the Government must avoid a top-down approach: boosting local capabilities and understanding local characteristics should be the starting point for working up to national policy frameworks.”

Growing regional divide driven by sectors

According to the report, just over half of the UK’s major economic sectors will have grown in GVA terms by 2023 compared to 2019.

The biggest growth by 2023 is expected in health (0.92% annual increase in GVA), professional services (0.78%), and IT (0.76%). The greatest shortfalls relative to 2019 are expected in manufacturing (-1.83%), hospitality (-1.36%), and arts and leisure (-1.29%).

The report says that the levelling up agenda can get back on track with targeted government and local action, and if lessons are learned from the pandemic’s impact on work-life balances.

Rohan Malik, EY’s UK&I Managing Partner Government and Infrastructure, said:

“Growth is forecast to be driven by high-end services which dominate city economies so, while the outlook for levelling up is disappointing, it is perhaps not surprising. By weakening the sectors that towns are most dependent on, COVID-19 has made levelling up harder.

“Looking ahead, manufacturing will be key to the levelling up agenda. An estimated 86% of manufacturing activity is located in towns or smaller cities outside the South East, while our recent UK Attractiveness Survey found significant investor interest in reshaping manufacturing supply chains and reshoring activity to the UK. Although a difficult near-term is forecast for the sector, opportunities are there longer-term.

“Technology will play a major role in the sector’s future, so the UK can compete in a way that was not possible when labour costs drove location decisions. A relaunched Industrial Strategy should target emerging opportunities here.

“To accelerate the levelling up agenda, the Government’s aim should be to tailor sector opportunities to local conditions. These should dictate what is needed for investment in skills, transport, digital and social infrastructure. Once plans are agreed, resources should be released to local control for delivery wherever practical.”

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