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Embargoed till 00.01 Wednesday 28 July 2010

UK Regional Press Release

 

Slow growth to 2015 will be accompanied by a widening of the North-South Divide

 

 

Cambridge Econometrics today releases its latest forecasts for the nations and regions of the UK and publishes it on its Knowledge Base website. The forecasts are based on Cambridge Econometrics’ Regionalised Multi-sectoral Dynamic Model of the economy of the UK and its nations and regions. The press release of the CE’s UK forecast can be found here.

Over the period 2010-15 UK Gross Value Added (GVA) is expected to rise by an average of 2% per annum, with growth peaking at 2¼% in 2011 but falling back to 2% pa or less over 2012-15. The performance of the UK nations and regions over this period will vary and the North-South Divide is forecast to widen on several measures. Over 2010-15 GVA is expected to grow faster in London, the South East and East of England (at 2¼% - 2½% pa), while growth in all other regions is expected to lag behind the UK average. The slowest growth is forecast for the North East, Wales and Scotland (at about 1½% pa), and Yorkshire & the Humber and Northern Ireland at slightly above 1½% pa.

UK manufacturing output is forecast to grow by just over 2% pa with most regions achieving growth close to this rate; the only notable exception is London where growth is 1½% pa. However, GVA growth in London is expected to be supported by fast growth in services; services output in London is forecast to rise by 2¾% pa and this is reflected in London’s lead position when ranking the regions according to overall growth over 2010-15. Stronger-than-average growth in services is also forecast for the South East and the East of England, while in the South West and the midlands growth is only just slightly below average. In contrast to the regions in the south of England, Yorkshire & the Humber, the North East, Wales, Scotland and Northern Ireland are forecast to have output growth in services about half a percentage point per annum or more below the national average over 2010-15. This partly reflects the sharper than average decline expected in government services output in some of these regions (the North East, Yorkshire & the Humber, Northern Ireland and Scotland) but also the slower growth forecast in private services for some of them. Growth in financial & business services is expected to recover and UK output in this sector is forecast to grow by 3¾% pa over 2010-15. However, growth in this sector is expected to be half a percentage point per annum below the UK average in Yorkshire & the Humber, the North East and Scotland; and also to lag the UK average (but by less) in the North West, Wales and Northern Ireland.

This output performance with a more balanced growth in manufacturing but with growth in services faster in the south than the north of the country is expected to lead to a wider divide in the labour market between north and south over 2010-15.

Employment in the UK is expected to increase by 170,000 over 2010-15 as the loss of jobs expected in the government services over this period acts as a strong curb on employment growth. The net loss of government jobs in the UK is forecast to be 528,000 by 2015. Regions with high reliance on the public sector for the creation of new jobs are expected to see a fall in employment. The largest percentage fall in employment is expected in the North East (-2¼%, equivalent to the loss of 26,000 jobs). Over 2010-15 we forecast that the North East will have a 30,000 loss of public sector jobs but only a 4,000 increase in the private sector. Scotland is forecast to see a 1¼% decline in total employment, equivalent to 31,000 job losses. Other regions expected to have job losses include the West Midlands, the North West and the East Midlands. In contrast London is expected to see the highest increase in employment over 2010-15 at 2½% followed by the South East (2%) and East of England (1½%).

Only London is expected to return to, or perhaps surpass, the peak in employment seen before the recession. This is forecast to happen in 2012. All the other regions will still be below their pre-recession employment level in 2015. The labour market is expected to recover slowly in Yorkshire & the Humber and the North West, while the West Midlands, the North East and Scotland are not forecast to return to the pre-recession employment levels before 2020.

Unemployment in the UK is forecast to continue to rise to 2015 when the claimant-count rate is expected to be just below 5½% and about 1.8m will be unemployed. The unemployment rate is expected to rise in all the regions, but with marked differences between them.

Regions in the south of England will see their unemployment rates rise less than the national average, while in the West Midlands, regions in the north of England, Wales, Scotland and Northern Ireland unemployment will rise more than the UK average. Thus the north-south divide will become wider in unemployment also. The sharpest increases in unemployment by 2015 are forecast for the West Midlands, the North East and Scotland.

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Notes for Editors

Cambridge Econometrics today releases a new version of the UK Regional Knowledge Base, which contains detailed macroeconomic and industrial forecasts to the year 2020 for the nations and regions of the UK. These forecasts are based on MDM-E3, Cambridge Econometrics' 41-sector model of the UK economy and its nations and regions.

Cambridge Econometrics is an independent private limited company and is owned by a charity, the Cambridge Trust for the Promotion of New Thinking in Economics. It has been providing detailed economic and industrial and regional forecasts since 1978, and its system of quality management for economic modelling has been approved as complying with ISO 9001:2000. Our company also provides detailed energy forecasts for the UK, and regional and sectoral forecasts for the European Union.

We provide the most detailed long-term economic and industrial forecasts available for the UK and its nations and regions. The projections are based on the 'Cambridge model', known as the Multisectoral Dynamic Model of the UK economy (MDM), and originally developed in the University of Cambridge, Department of Applied Economics (in the 'Growth Project' set up in 1960 by Professor Sir Richard Stone, the 1984 Nobel Laureate in Economics, and Alan Brown). This large computerised system has approximately 5,000 endogenous variables and nearly 16,000 behavioural parameters and other coefficients. The model is continually revised and improved to take account of new data and advances in economic theory and econometric techniques.

The current version of the model, MDM-E3 uses chained volume measures with reference year 2005.
The cut-off date for the information used in the model run for this report was 30 June 2010.

Access to our updates is normally obtained by companies and government departments by subscription to the company's UK Regional Forecasting Service. CE's UK Regional Knowledge Base website is updated twice a year.
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For further information contact:

Katerina Homenidou

Associate Director, UK Regional Forecasting Service

Email: info@camecon.com

Tel: 01223 533100