Leeds is expected to see its economy grow quicker than the rest of Yorkshire & the Humber over 2024-2026, while the city is also forecast to keep pace with the national rate of growth over the same period, according to EY’s latest Regional Economic Forecast.
Despite a challenging economic outlook for the wider region, Leeds’ economy is expected to grow by 2.1% per year on average over the course of 2024 to 2026, when measured by Gross Value Added (GVA). Yorkshire and the Humber is forecast to see annual average growth of 1.7% per year over the same period, while the UK is expected to see 2.1% growth.
The new forecast projects that Leeds will add £1.5bn to its economy by 2026, compared with 2022, bolstered by the city’s employment growth, which is expected to be 1.4% per year on average from 2024 to 2026 – faster than both the national (1.3%) and regional (1.1%) rates.
Meanwhile, Sheffield and Harrogate are expected to have the joint-second fastest-growing economies across the region from 2024 to 2026, with both projected to see annual average growth of 1.9%.
Stephen Church, EY’s North Market Leader, said: “The North is home to many of the UK’s most dynamic and innovative businesses and, while the next 12 months will be economically challenging, there are areas across the region where we can expect to see encouraging growth over the next few years. The North’s cities are set to be particularly strong performers.
“However, progress is about the whole of our region, not just our bigger cities. And while several towns and cities are expected to see better economic and employment growth than many other parts of the country, too many places are still expected to trail behind.
“In order to spread growth, not just throughout the country, but throughout regions too, it is critical that the public and private sectors work together to combine their expertise, strengths, and capabilities. The North needs both working in tandem to succeed.
“Looking ahead, the regions across the North need their own clear strategies for growth, which reflect each region’s own strengths and unique attributes. Getting the right sector mix is key, and investment in high-value sectors and skills can help build a sustainable future – not just for the North, but for the whole country too.”
Opportunities and challenges ahead across Yorkshire & the Humber
Yorkshire & the Humber’s forecast 2024-26 growth would represent a bounce-back from its projected 1% GVA contraction for 2023, with the region’s wholesale and retail trade and human health and social work sectors forecast to play a significant role in underpinning economic performance. Manufacturing and public administration sectors, however, are expected to weigh on overall prospects.
As well as expecting some of the fastest economic growth in the region from 2024 to 2026, Sheffield and Harrogate are also forecast to see their employment growth match the national growth rate over the same period, with annual average growth of 1.3% in both places.
York joins Leeds, Sheffield and Harrogate in being expected to outpace regional economic growth from 2024 to 2026, with an annual average of 1.8% growth forecast. According to the forecast, York is also expected to see its annual employment growth (1.2%) outpace the regional rate over the same period, despite falling marginally short of the national average.
Doncaster’s performance is expected to match regional trends, with its annual average economic growth (1.7%) and annual average employment growth (1.1%) from 2024 to 2026 forecast to be equal to the average rates for the wider Yorkshire & the Humber region.
Barnsley and Calderdale are both expected to match Doncaster’s economic growth over the same period, despite seeing average employment growth of 1% per year from 2024 to 2026 – marginally below the regional average.
Wakefield and Bradford are also forecast to see 1% annual employment growth on average from 2024 to 2026, and both are expected to see their economic growth over the same period fall slightly short of the regional average, with 1.6% per year forecast in Wakefield, and 1.5% per year in Bradford.
Kirklees is also expected to see 1.5% annual economic growth over that period, albeit with a slightly slower annual employment growth rate (0.9%).
Rotherham, meanwhile, is expected to see an average of 1.4% annual economic growth from 2024 to 2026, and 0.7% annual employment growth over the same period.
The only place in the region expected to see slower progress is Hull, which is forecast to see 1.2% GVA growth between 2024 and 2026, while matching Rotherham’s 0.7% annual employment growth over the same period.
The economic gap between London and the rest of the country set to grow again
The EY Regional Economic Forecast also says that the rising cost of living and weaker consumer spending are expected to deepen the economic divide between London and the rest of the UK.
The forecast says that UK Gross Value Added (GVA) is expected to decline 0.6% over the course of 2023, with London (-0.2%) the only part of the country predicted to see a smaller economic contraction than the UK overall.
Driving the contraction in UK output in 2023 are the forecast declines in services most dependent on household spending. With consumers struggling amid cost of living pressures, this year’s worst performing sectors are expected to include wholesale and retail (-3.3% GVA contraction), accommodation and food services (-2.7%), and arts, entertainment and recreation (-1.8%). Manufacturing (-2.9%), which relies on consumer spending to maintain demand, also faces challenges relating to higher input costs such as raw materials and labour, alongside increased borrowing costs.
At the other end of the spectrum, less consumer-dependent sectors like administrative and support services (0.8%) and professional services (0.1%) are expected to see some growth, while sectors like real estate (-0.2%) and financial and insurance services (-0.5%) are forecast to see smaller contractions than the rest of the economy.
Over the course of 2024-2026, UK GVA is expected to grow at an annual average 2.1%, with London growing 2.6%. The South East (2.2%), South West (2.1%), East of England (2.1%) and West Midlands (2.1%) are also forecast to outpace or match wider UK growth. Like London, the West Midlands and the South West are both expected to be boosted by strong growth in the information and communication sector, which is expected to be the UK’s fastest growing sector in the medium-term.
The pattern in GVA growth is reflected in jobs, with only London, Northern Ireland and Wales expected to perform better than the UK as a whole in 2023. Job numbers in these three areas are expected to be effectively unchanged this year, and down 0.2% across the UK. The West Midlands is forecast to trail the rest of the country, with job numbers shrinking 0.4%. London is also forecast to see the highest increase in its working age population in the medium term, with annualised growth of 1.2% between 2024 and 2026.
Rohan Malik, EY’s UK&I managing partner Markets & Accounts, says: “The rising cost of living is likely to exacerbate the differences in regional economic performance, widening regional inequalities and heightening the need for economic policy which spreads growth out across the UK. Levelling-up presents an opportunity to boost growth for the whole of the UK – but familiar patterns are still all too present as the economy recovers from the pandemic.
“London clearly enjoys advantages in economic resilience, skill levels, and in productivity – both in higher and lower skilled sectors. But London’s performance also offers lessons for the rest of the country. Sector composition is key for regional economic performance, for example. Regions need their own visionary sectoral growth plans that define roles for the private sector, alongside government, as investors, employers and economic agents in their regions. It’s also vital to unlock investment in skills and encourage labour retention.
“The key to nurturing a strong sector composition is investment in high value-added sectors, like advanced manufacturing and information and communication. The transition to Net Zero, for example, represents a generational opportunity to rebuild the manufacturing base, upskilling workers in new energy generation and operation capabilities across the value chain from construction of solar farms, heat networks and hydrogen pipelines to electric vehicles and charging infrastructure. A one-size fits all approach won’t work though, and regions need to understand their own strengths, weaknesses, and sub-sector opportunities.
“High value sectors won’t function without a high value workforce and, too often, regions struggle to retain and uplift their skill bases. Fixing this needs to be approached from several angles: graduate and skills retention relies not just on the development of well-paid jobs, but strategic planning on the broader set of social, environmental and structural components that determine the quality of life in a given region too.”