• Swindon & Wiltshire News
• Monday January 31 2022
• Author Name: Peter Davison

South West set to be one of only two regions to gain ground on London’s economy by 2025, finds latest EY report

The South West is one of only two UK regions forecast to close the economic gap to London over the next three years as the country recovers from the impact of Covid-19, according to new research published by professional services provider EY.

EY’s Regional Economic Forecast, published today, says the South West’s economy, measured by Gross Value Added (GVA), is expected to be nine per cent larger in 2025 than it was in 2019 – the second-largest increase among English regions, behind only the East Midlands (9.5 per cent) and ahead of London (8.9 per cent).

The UK’s GVA is forecast to have grown 8.3 per cent relative to its 2019 performance by 2025.

Under one-in-five areas of the country recovered to their pre-pandemic GVA by the end of 2021, and Bristol was one of just two major cities to do so (alongside Nottingham).

Bristol’s outperformance has been supported by the strength of city’s real estate and wholesale and retail sectors.

On an annual basis, GVA and employment in the South West are forecast to grow at a similar pace to the rest of the UK from 2022 to 2025, with average annual growth rates of 2.8 per cent and one per cent respectively.

The human health and social work sector is expected to post the largest increases in employment over this period.

The region’s lead over London by 2025 is down to its resilient performance during the initial stages of the pandemic, with the South West’s GVA only 2.5% lower by the end of 2021 than it had been in 2019. By contrast, UK GVA was three per cent lower and London’s GVA was 3.6 per cent lower.

Despite strong performances by the South West and East Midlands, the report sets out the scale of the task needed to level up the UK economy. The research shows the pandemic has helped to narrow the UK’s regional economic divide, but the gap between London and the rest of the country it set to grow again during the post-pandemic recovery. The capital is on course to regain lost ground to the South West and East Midlands beyond 2025 too.

The report also forecasts that the economic gap between cities and towns will continue to widen, with England’s major cities expected to grow 2.9 per cent per year by 2025, compared to forecast growth of 2.6 per cent in towns.

Karen Kirkwood, office managing partner at EY in the South West, said: “The South West’s economy has undergone a period of transformation in recent years, moving away from more traditional manufacturing to focus on other sectors, including administrative support and services.

“Covid-19 has undoubtedly had a significant economic impact on the region, but the local economy has proven to be resilient and is now well placed for a good recovery post-pandemic.

“Sectors in which the region excels, such as accommodation and food services and the arts, entertainment and recreation are set to see particularly rapid growth over the next few years.

“However, with the data showing London recovering from the pandemic more quickly than much of the rest of the of the country, action is needed to ensure the South West doesn’t get left behind in the long-term. Greater flexibility on where people work, aided by the pandemic, could help this.

“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.

“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.”

Bristol set to lead the South West for growth

Bristol’s GVA is expected to expand by 3.1 per cent per year between 2022 and 2025, the fastest rate of growth in the region. This expansion is set to be supported by GVA growth in the real estate and profession, scientific and technical sectors. Employment in the city is forecast to grow at an average of 1.4 per cent per year between 2022 and 2025.

After Bristol, the fastest growing regional locations are expected to be Torbay (2.8 per cent), Stroud (2.8 per cent), Exeter (2.7 per cent), Taunton Deane (2.6 per cent), Plymouth (2.3 per cent) and Swindon (1.9 per cent).

According to EY’s analysis, the West Midlands, North West and London economies were the most affected by the initial impact of the pandemic, with 2021 seeing the West Midlands economy recover to just 94.5 per cent of its 2019 size, the North West’s economy reaching 96.1 per cent of its 2019 size, and London recovering to 96.4 per cent.

By contrast, the Yorkshire and the Humber economy had reached 98.8 per cent of its pre-pandemic size by the end of 2021, while the North East was at 98.5 per cent.

Relative to their pre-pandemic GVA levels, the West Midlands (up 5.3 per cent), North West (6.8 per cent), and North East (7.9 per cent) are expected to grow at the slowest pace.

Sector mix key to long-term recovery

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 cent per year, followed by other services (up 6.7 per cent), administrative and support services (up 5.5 per cent), and arts and entertainment (up 5.4 per cent).

The transportation and storage sector is expected to grow 3.8 per cent per year. By contrast, manufacturing is one of the sectors expected to undershoot the overall annual UK GVA growth (2.8 per cent), with 1.7 per cent growth forecast.

Karen Kirkwood added: “These sector mixes will dictate the longer-term recovery. The North East’s public sector helped the region’s economy weather the pandemic but may mean slower post-pandemic growth. Conversely, city-friendly sectors including digital, science and technology, and services will eventually bounce back, taking London and Bristol amongst others with them after a slow start.”

Rohan Malik, EY’s UK&I managing partner markets & accounts concludes: “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.”