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North-south divide set to widen over next three years, study shows North-south divide set to widen over next three years, study shows
(35 minutes later)
London’s economy will continue to outpace the rest of the UK for at least the next three years, exacerbating the north-south divide, despite the chancellor’s “northern powerhouse” initiative, a study shows.London’s economy will continue to outpace the rest of the UK for at least the next three years, exacerbating the north-south divide, despite the chancellor’s “northern powerhouse” initiative, a study shows.
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George Osborne has announced a series of devolution deals to city-regions including Manchester, Sheffield and Liverpool, in the hope of stimulating stronger economic growth outside the capital. Launching the programme in Manchester in May, he described it as “a revolution in the way we govern England”.George Osborne has announced a series of devolution deals to city-regions including Manchester, Sheffield and Liverpool, in the hope of stimulating stronger economic growth outside the capital. Launching the programme in Manchester in May, he described it as “a revolution in the way we govern England”.
But a forecast from EY consultancy’s economists published on Thursday suggests the resulting policies, which include boosting infrastructure – including by building the key high speed 2 railway line – and allowing councils to keep more of the revenue from business rates, are unlikely to bear fruit until at least 2020. But a forecast from EY consultancy’s economists published on Thursday suggests the resulting policies, which include boosting infrastructure – such as by building the HS2 railway line – and allowing councils to keep more of the revenue from business rates, are unlikely to bear fruit until at least 2020.
“From our projections, it’s clear that we don’t expect the government’s northern powerhouse ambitions to have a radical economic impact during our forecast period through to 2018. At best the economic boost will be felt more in the next decade than this one,” the report says.“From our projections, it’s clear that we don’t expect the government’s northern powerhouse ambitions to have a radical economic impact during our forecast period through to 2018. At best the economic boost will be felt more in the next decade than this one,” the report says.
Meanwhile, the north-south divide is expected to widen further, with economic output in the capital increasing by an average of 3% a year between 2015 and 2018; while the north-east will see an annual expansion of just 1.6%. Only London, the south-east and the east are expected to grow faster than the UK average.Meanwhile, the north-south divide is expected to widen further, with economic output in the capital increasing by an average of 3% a year between 2015 and 2018; while the north-east will see an annual expansion of just 1.6%. Only London, the south-east and the east are expected to grow faster than the UK average.
Mark Gregory, EY’s chief economist for the UK and Ireland, said: “It’s more of the same for dominant London over the next three years thanks to the city’s outstanding professional services, technology and communications sectors, the return to growth in financial services, and the boost from inward migration.”Mark Gregory, EY’s chief economist for the UK and Ireland, said: “It’s more of the same for dominant London over the next three years thanks to the city’s outstanding professional services, technology and communications sectors, the return to growth in financial services, and the boost from inward migration.”
He added that public spending cuts and rising interest rates are likely to bite hard outside of London. “We predict growth in the rest of the UK will slow slightly whilst remaining stable, as inflation impacts consumer confidence, interest rates begin to rise and public expenditure reform bites,” he said.He added that public spending cuts and rising interest rates are likely to bite hard outside of London. “We predict growth in the rest of the UK will slow slightly whilst remaining stable, as inflation impacts consumer confidence, interest rates begin to rise and public expenditure reform bites,” he said.
That would continue the pattern revealed in official figures published on Wednesday, which showed a sharp divergence between London and its hinterland.That would continue the pattern revealed in official figures published on Wednesday, which showed a sharp divergence between London and its hinterland.
The ONS said average GVA – or economic output – per head was £42,666 in London last year, while in Wales it was just £17,573. The fastest growth in GVA per head in 2014 was recorded in London, where it was 5.3%, more than 1 percentage point ahead of the next two regions, Scotland and the east of England, which experienced growth of 4.2%.The ONS said average GVA – or economic output – per head was £42,666 in London last year, while in Wales it was just £17,573. The fastest growth in GVA per head in 2014 was recorded in London, where it was 5.3%, more than 1 percentage point ahead of the next two regions, Scotland and the east of England, which experienced growth of 4.2%.
Responding to the data, the TUC general secretary, Frances O’Grady, said: “It’s good to see growth across all of the UK’s nations and regions, but outside of London many areas are still in the slow lane.”Responding to the data, the TUC general secretary, Frances O’Grady, said: “It’s good to see growth across all of the UK’s nations and regions, but outside of London many areas are still in the slow lane.”
She added that depending too heavily on financial services and a buoyant housing market to drive growth could jeopardise the sustainability of the recovery. “Despite London’s stronger performance, the risk is that we are simply seeing a re-run of pre-crash trends,” she said. She added that depending too heavily on financial services and a buoyant housing market to drive growth could jeopardise the sustainability of the recovery. “Despite London’s stronger performance, the risk is that we are simply seeing a rerun of pre-crash trends,” she said.
Her words echoed the warning of John Longworth, director of the British Chambers of Commerce, this week, who warned that the economy remained too reliant on consumer spending. “We have been down this path before, and know that it leaves individuals and businesses exposed when interest rates do eventually rise,” he said.Her words echoed the warning of John Longworth, director of the British Chambers of Commerce, this week, who warned that the economy remained too reliant on consumer spending. “We have been down this path before, and know that it leaves individuals and businesses exposed when interest rates do eventually rise,” he said.
The chancellor arrived in No 11 in 2010 determined to heal the deep regional divide in the UK economy, which has tended to see London’s huge financial services industry and frothy housing market relentlessly outpacing the former industrial heartlands of the north.The chancellor arrived in No 11 in 2010 determined to heal the deep regional divide in the UK economy, which has tended to see London’s huge financial services industry and frothy housing market relentlessly outpacing the former industrial heartlands of the north.
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But with manufacturing output still more than 6% below its pre-crisis peak, and the economic recovery heavily reliant on services, which tend to be focused in the south, the familiar pattern appears to be reasserting itself.But with manufacturing output still more than 6% below its pre-crisis peak, and the economic recovery heavily reliant on services, which tend to be focused in the south, the familiar pattern appears to be reasserting itself.
Lord Jim O’Neill, former chief economist of Goldman Sachs, has been appointed a Treasury minister to spearhead the northern powerhouse initiative. Lord O’Neill, former chief economist of Goldman Sachs, has been appointed a Treasury minister to spearhead the northern powerhouse initiative.
EY expects the east of England to experience 2.4% average growth over the next three years, and the south east 2.5%. It tips several cities within reach of London, including Luton and Reading, as likely success stories over the next few years.EY expects the east of England to experience 2.4% average growth over the next three years, and the south east 2.5%. It tips several cities within reach of London, including Luton and Reading, as likely success stories over the next few years.
Gregory said: “The London effect is certainly being felt in its surrounding cities and should help Reading, Luton and Cambridge to perform strongly to 2018 as investment continues.”Gregory said: “The London effect is certainly being felt in its surrounding cities and should help Reading, Luton and Cambridge to perform strongly to 2018 as investment continues.”
The EY report followed similar findings in a separate study by the Centre for Economics and Business Research in October, which predicted that the gap between London and the rest of the UK would widen over the next decade.The EY report followed similar findings in a separate study by the Centre for Economics and Business Research in October, which predicted that the gap between London and the rest of the UK would widen over the next decade.