Liverpool’s average annual GVA growth is expected to more than double to 1.5% a year through to 2021, a new report from EY has revealed.
EY’s annual UK Regional Economic Forecast says the predicted GVA growth compares to a 0.7% annual average between 2015 and 2018.
Liverpool’s performance is closely aligned to the performance of the wider North West, which is also predicted to have an annual GVA growth rate of 1.5% to 2021, with its growth being largely underpinned by the business services sector.
The region is forecast to slightly underperform the UK as a whole, which is predicted to have GVA growth of 1.7% a year to 2021.
However, the North West has performed strongly since 2015, narrowing the gap with the growth leading regions, and benefitted from its diversified economy.
Liverpool’s employment growth is expected to follow the national trend with a reduction in growth from 1.7% (2015 to 2018) to 0.5% (2018 to 2021).
Employment growth is also expected to be driven by the business service sector, offsetting a decline in public sector jobs and also in manufacturing.
Manufacturing has grown over the last three years and employment has increased as a result. However, it is expected to grow more slowly over the next three years as technology is used to drive higher productivity in a more challenging labour market.
The report says that a slowdown in the retail sector, especially on the high street, also poses significant challenges for smaller towns and communities as retail tends to be a major employer in these locations.
Given these contrasting drivers, combined with a slowing economy, expected lower EU immigration and technological change, North West employment is expected to grow at 0.5% a year to 2021, in line with the UK as a whole (0.5%), as a result of this anticipated shift in the labour market over the next few years.
Meanwhile, Manchester is forecast to remain one of the UK’s strongest performing cities to 2021, with its annual employment growth top of the city league tables and GVA (gross value added) a very close second.
Targeted policy action needed
Jenn Hazlehurst, Liverpool Office Managing Partner at EY, said: “I am heartened to see that Liverpool’s GVA growth is predicted to improve significantly over the next three years when other cities are seeing growth slow.
“Diving into the detail, that is driven by a general increase across a range of sectors but particularly noticeable is a considerable increase in GVA growth from the information & communications sector, albeit from a low base.
“The North West region is fortunate to have a fairly mixed economy and therefore it remains resilient and sits middle of the pack in terms of predicted GVA growth, albeit slightly below the UK average.
“To drive it up that league table there is of course the widely reported requirement of better infrastructure and connectivity. But there is also a need reskill our labour market and focus on the huge opportunity presented by digital and technology.
“The national figures clearly show that one of the big priority areas for policy-makers should be an investment in skills. It is vital that we enable the UK workforce to respond to a more challenging and changing labour market. When skills development is viewed in the context of geographic imbalances, it’s clear that more of the activity on skills and education has to be shaped at a local level and not ‘top down’.
“We would also like to see a comprehensive assessment of the retail sector and the policy needed to support the transformation of our UK high streets. This should go beyond just business rates and also consider planning approaches, environmental issues, the costs of the online supply chain and alternative models for high streets.”
UK more balanced as the services sector slows
Across the UK, growth is set to be more geographically balanced over the next three years, but there has been little progress towards reducing imbalances in the previous three years.
However, the report says this more balanced growth profile will principally be the result of slower growth in the services sector, which will have a detrimental impact on the south of the UK, rather than other regions ‘catching up’ through an improved performance.
The report also warns that imbalances in growth between different places within regions will continue to increase, with cities and larger towns pulling away from their smaller neighbours.
Regions with a large manufacturing base enjoyed a boost last year, with the weaker sterling making exports more competitive. However, more subdued growth is expected for these regions in 2018-21, as sterling strengthens and global demand cools, amid a backdrop of more protectionist policies. The North East (1.1%), East Midlands and Wales (both 1.4%) are expected to be the regions with the slowest GVA growth each year up to 2021.
Employment growth in the northern regions will continue to lag behind the UK over the next three years because they are typically more dependent on the manufacturing, and public administration and defence sectors, which are forecast to see reduced employment levels through to 2021. The North East (0.1%), Yorkshire and Humberside, Wales and South West (all 0.4%) are forecast to be the regions with the slowest employment growth per year up to 2021.
Mark Gregory, EY’s chief economist, said: “The recent slowing services sector growth has limited further increases in the geographic differences between North and South.
“While there are positive and encouraging signs in some areas, the forecast shows that rebalancing is a more significant and complex challenge – particularly at a local level. Radical thinking and targeted policy action will be needed if the UK is to truly see the benefits of a more balanced economy.”
Sunderland (1.1%), Teesside and Hull (both 1.2%) make up the bottom three performing urban areas by GVA growth per year. However, at 1.2% the gap forecast between the fastest and slowest growing cities over the next three years will be significantly less than from 2015-18 (3.5%).
Imbalances still growing within regions
Despite the growth gap getting closer between the fastest and slowest growing cities, the report says that smaller locations are falling further behind. Core Cities in the forecast (London, Leeds, Manchester, Liverpool, Newcastle, Birmingham, Cardiff and Bristol) are expected to grow at 1.8% annually on average between 2015 and 2018 and Large Towns are expected to grow by 1.6%. In contrast, smaller locations are forecast to grow by just 1.5%.
Mark Gregory added: “The UK’s approach to geographic rebalancing must identify how smaller cities and towns, and the more remote parts of the country, can benefit from the success of the faster-growing Core Cities. Improved connectivity, both physical and digital, will be critical in ensuring that the economy is one in which everyone has a chance to participate fully, regardless of location.”