UK Powerhouse

Welcome to the latest edition of UK Powerhouse, analysing economic performance in Q3 2019 and looking ahead to Q4 2020.

City Growth Tracker – January 2020

Foreword

Happy New Year and welcome to our latest UK Powerhouse report

Foreword

Many people in the business world will be pleased to see the back of 2019 – it was an unsettling period both politically and economically.

As we move into a New Year and the start of a decade it’s important that we accept the challenges ahead and embrace them with positivity and optimism.

The 0.4% growth in GDP that we saw in Q3 last year meant we avoided a technical recession. There’s also hope that following December's General Election, we’ll have a period of stability in which businesses can start planning and investing for the future.

Our latest City Tracker points to a slowdown in the level of growth across the vast majority of the 46 locations in this report, but it’s important to highlight the clusters of activity and opportunity.

Reading, Portsmouth and Exeter, for example, are all expected to see relatively fast-paced growth in the year to Q4 2020. Other locations are also expected to grow more quickly by the end of this year than they did in Q3 2019.

This resilience in the face of Brexit-related uncertainty and a global economic slowdown is something we should celebrate.

If you have any questions about anything in this report, or if you need help overcoming challenges or taking advantage of opportunities that may arise over 2020, please don't hesitate to get in touch.

I hope you find this report interesting.

Victoria Brackett
CEO of Business Legal Services
victoria.brackett@irwinmitchell.com

Executive Summary

Official economic data sources for the UK’s cities are often dated, and fail to provide a reliable snapshot of the UK’s localised economies – the last set of regional economic accounts corresponds to the economy in 2018.

To more accurately estimate current economic activity, Cebr has utilised a range of more timely indicators to create a ‘nowcast’ of gross value added (GVA) and employment for a range of key cities across the UK.

Cebr also models the economies of these cities in order to produce a forecast of their performance, and the latest outputs of this analysis give us a picture of how the regional economies of the UK performed in Q3 2019, and how they’re expected to perform in Q4 2020.

Key Facts

UK Economic Performance

How the economy performed in Q3 2019

UK Economic Performance in Q3 2019

Annual GDP growth slowed to joint-lowest rate since 2010 in Q3

The UK economy showed some signs of life in the third quarter of 2019, expanding by 0.4% according to the Office for National Statistics (ONS).

These latest figures meant the UK avoided entering a technical recession – marked by two consecutive quarters of negative growth – in Q3, following a 0.2% contraction the previous quarter. Despite this, the year-on-year GDP growth rate slowed to 1.1% in Q3, the joint-lowest it’s been since Q1 2010.

Households continued to act as an important engine of growth for the UK economy between July and September, with consumer spending rising by 0.3% quarter-on-quarter. The labour market remained in very decent shape in Q3, with 3.8% unemployment and 1.9% real wage growth, which will have buoyed household expenditures.

Government expenditure fell by 0.6% between Q2 and Q3. Looking ahead, the UK is poised to enter a period of expansionary fiscal policy. Chancellor Sajid Javid has loosened the Conservative party’s fiscal rules, aiming to keep infrastructure borrowing within 3% of GDP by the middle of the next parliament.

Exports saw a dramatic revival in Q3, as the UK trade deficit narrowed to 0.1% of nominal GDP, although latest estimates show that business investment was flat in Q3, continuing its recent subdued performance. This highlights that companies continued to exercise caution, given the prevailing climate of uncertainty.

Key to the UK’s economic prospects in the years ahead will be reversing the extended period of meagre productivity growth it’s suffered since the financial crisis. If political pledges made during the recent election cycle translate into meaningful investments in infrastructure, this could go some way to achieving this.

City Growth Tracker

UK Powerhouse tables and commentary

City Growth Tracker

GVA growth is set to average less than 1% across UK Powerhouse cities in Q4 2020

Between Q3 2019 and Q4 2020, growth is expected to slow for nearly all of the 46 UK Powerhouse cities. The simple average annual growth rate across them was 1.2% in Q3 2019, but this is expected to be just 0.9% in Q4 2020.

Only three cities are forecast to see an acceleration of growth between the two quarters: Portsmouth, Sunderland and Swansea.

Portsmouth is forecast to be the second-fastest growing city in terms of GVA by the end of 2020. Located on the coast of the South East of England, Portsmouth’s large port and naval dockyard dominate the local economy. A recent report found that the port, which handles around £700 million of non-EU trade each year and supports 2,410 jobs in the local area through direct employment and supply chain impacts, is worth £390m to the national economy.¹ Defence company BAE Systems also contributes significantly to Portsmouth’s local economy by supporting employment in the city.

¹ https://www.portsmouth-port.co.uk/news/portsmouth-ports-390m-contribution-to-the-national-economy

Sunderland’s economy is set to continue growing for the foreseeable future, with the annual rate of GVA expansion forecast to accelerate to 0.6% in Q4 2020. This is despite a slowdown in car manufacturing, one of the city’s main industries. Sunderland is home to Nissan’s European factory, which employs nearly 7,000 people. This year, it’s been announced that the company’s newest model will be built in Japan, not the UK. A no-deal Brexit at the end of 2020 would also increase the likelihood of job cuts at the factory.

But economic growth in the city has been supported by other businesses in the advanced manufacturing sector, and the construction of the International Advanced Manufacturing Park (IAMP) will add to the success of the sector, while generating growth in the construction industry until its completion.

Swansea is also set to see an acceleration of growth between Q3 2019 and Q4 2020, although annual GVA growth is still only expected to be 0.6% in Q4 2020.

The Welsh city is home to an ageing population, which puts pressure on public resources in the form of higher demand for social care and health services. The potential for growth in the city comes from its technology sector, with the city being home to companies such as Veeqo, which is an all-in-one inventory, orders, and shipping management system for e-commerce businesses, or Vortex IOT, which builds sensors and networks for harsh environments.

Peterborough is expected to be the sixth-fastest growing UK Powerhouse city in Q4 2020, and the fastest growing in the East of England, beating Cambridge, which has seen the most rapid growth out of UK cities in the past.

With a large business administration and support services industry, the service sector dominates the city’s economy. Companies benefit from the low costs of doing business there – analysis by Opportunity Peterborough of Colliers data shows that Peterborough had the lowest cost grade A office space in 2018 compared with similar cities within a 50-minute commute of London, at around £13.50 per sqft.²

Doncaster is forecasted to be the fastest growing northern city in Q4 2020, with 0.9% year-on-year growth – the same as in London. The city is home to Doncaster Rail Port, a strategic rail freight hub, as well as a number of other warehousing and logistic centres for UK retailers, including Amazon and IKEA.

Doncaster launched its Growing Together Prospectus in September 2017, which included aims to increase investment into the city and support local businesses over four years, and significant progress has already been made.³ Overall investment (into and within Doncaster) for 2018 is estimated to have been £170m.

Birmingham is set to see the fastest annual GVA growth out of cities in the Midlands in Q4 2020.

It was recently announced that a new virtual reality hub is to be opened by Birmingham City University, following an investment of £3.4m.⁴ This highlights the willingness of organisations to invest in the thriving city, and support the booming technology industry in the West Midlands.

Overall, although most cities will see a slowing of growth in the coming quarters, there are clusters of activity and opportunity, as shown in this report. In particular, Reading, Portsmouth and Exeter are expected to see relatively fast-paced growth in the year to Q4 2020, showing resilience in the face of Brexit-related uncertainty and a global economic slowdown.

Although most cities, including those in the West Midlands, are seeing a slowing of growth in the coming quarters, there are signs of resilience in Birmingham in the face of Brexit-related uncertainty and a global economic slowdown.

Chris Rawstron, Partner

² https://www.opportunitypeterborough.co.uk/peterboroughs-economy/

³ https://www.doncaster.gov.uk/services/the-council-democracy/doncaster-growing-together

⁴ https://www.businesscloud.co.uk/news/34m-birmingham-vr-hub-opens

UK Powerhouse table

GVA – Q4 2020

		GVA Q4 2020, £mn (annualised, constant 2015 prices)	Growth (YoY)
1.	Reading	8,000	1.7%
2.	Portsmouth	5,500	1.6%
3.	Exeter	5,300	1.5%
4.	Oxford	8,100	1.5%
5.	Milton Keynes	14,100	1.4%
6.	Peterborough	6,500	1.3%
7.	Ipswich	5,000	1.2%
8.	Southampton	7,500	1.2%
9.	Cambridge	9,600	1.2%
10.	Birmingham	28,300	1.2%
11.	Outer London	138,200	1.1%
12.	Bristol	14,300	1.1%
13.	Brighton	8,200	1.1%
14.	Bournemouth	5,000	1.1%
15.	Nottingham	9,800	1.0%
16.	Stoke-on-Trent	5,500	1.0%
17.	Glasgow	19,800	1.0%
18.	Derby	6,900	1.0%
19.	Leicester	8,100	0.9%
20.	Doncaster	5,700	0.9%

21.	London	438,000	0.9%
22.	Norwich	3,100	0.9%
23.	Edinburgh	23,900	0.9%
24.	Wakefield	7,200	0.8%
25.	Coventry	9,200	0.8%
26.	Inner London	299,900	0.8%
27.	Newcastle	9,800	0.8%
28.	Sheffield	12,200	0.8%
29.	Manchester	21,900	0.8%
30.	Liverpool	13,000	0.8%
31.	Stockport	6,500	0.7%
32.	Swindon	9,300	0.7%
33.	Rotherham	4,700	0.7%
34.	Greater Manchester	68,700	0.7%
35.	York	6,100	0.7%
36.	Plymouth	5,200	0.7%
37.	Wolverhampton	4,500	0.7%
38.	Sunderland	7,100	0.6%
39.	Swansea	5,200	0.6%
40.	Leeds	25,300	0.6%
41.	Middlesbrough	3,300	0.6%
42.	Bradford	9,100	0.6%
43.	Belfast	13,000	0.5%
44.	Cardiff	11,800	0.4%
45.	Hull	5,900	0.3%
46.	Aberdeen	11,700	0.1%

UK Powerhouse table

Employment – Q4 2020

		Employment level (Q4 2020)	Growth (YoY)
1.	Stoke-on-Trent	122,000	2.2%
2.	Cambridge	140,400	2.1%
3.	Inner London	3,487,800	2.1%
4.	Oxford	140,600	1.9%
5.	Liverpool	331,000	1.8%
6.	London	5,219,200	1.7%
7.	Exeter	105,500	1.6%
8.	Sunderland	139,600	1.4%
9.	Edinburgh	384,300	1.4%
10.	Manchester	490,100	1.4%
11.	Bournemouth	94,300	1.3%
12.	Cardiff	260,600	1.3%
13.	Peterborough	118,900	1.3%
14.	Leeds	472,200	1.2%
15.	Sheffield	307,500	1.2%
16.	Brighton	151,700	1.2%
17.	Birmingham	582,400	1.1%
18.	Bristol	360,300	1.1%
19.	Milton Keynes	160,800	1.1%
20.	Wolverhampton	124,700	1.0%

21.	Hull	157,700	1.0%
22.	Newcastle	217,500	0.9%
23.	Rotherham	107,800	0.9%
24.	Coventry	198,600	0.9%
25.	Derby	151,400	0.9%
26.	Outer London	1,731,400	0.8%
27.	Swindon	123,200	0.8%
28.	Glasgow	444,200	0.8%
29.	Ipswich	84,200	0.8%
30.	Plymouth	147,800	0.8%
31.	Greater Manchester	1,339,800	0.8%
32.	Southampton	155,700	0.7%
33.	Norwich	138,800	0.7%
34.	York	122,600	0.5%
35.	Portsmouth	117,100	0.5%
36.	Leicester	208,300	0.4%
37.	Nottingham	230,700	0.4%
38	Bradford	215,000	0.4%
39	Middlesbrough	74,800	0.3%
40.	Reading	122,900	0.3%
41.	Doncaster	132,600	0.3%
42.	Aberdeen	179,600	0.0%
43.	Stockport	116,500	-0.1%
44.	Wakefield	144,000	-0.1%
45.	Swansea	117,600	-0.4%
46.	Belfast	124,500	-0.6%

London remains strong for employment growth

Stoke, Cambridge and Inner London are expected to see the fastest employment growth rates in the year to Q4 2020, with each enjoying growth of over 2%.

Four UK Powerhouse cities are expected to see negative employment growth in the same time period.

Looking ahead to 2020, Inner London is set to continue to thrive as an employment hub. Despite very high prices for office space, employers are drawn to the capital as a base city because it’s one of the best-connected cities in the world, and a popular home for many of the UK’s largest businesses, as well as many international corporations.

While Brexit will pose a threat to some industries, such as finance, where the loss of passporting rights will limit the ability for banks to do business, the city will remain an attractive investment choice.

Liverpool is expected to see the fastest employment growth in the North in the year to Q4 2020. Recently, figures revealed that filming of TV and film projects brought £17.6 million to the city’s economy in 2019, over 1,750 production days.⁵ This will have generated considerable employment opportunities within the city. Tourism also provides job opportunities for its people. Visit Britain data shows that between 2016 and 2018, it was the fourth most visited city in the UK, stimulating the local economy by increasing spending in hotels, bars, restaurants and tourist attractions.

In Yorkshire, Leeds is forecasted to see the fastest rate of employment growth in the year to Q4 2020. Leeds is well connected compared to other Yorkshire cities, sitting at the intersection of the national motorway network, and being just two hours by rail from London Kings Cross. This benefits businesses since they are more able to set up meetings with clients and other contacts in different locations. Additionally, the tech sector is of significant importance, with over 1,350 digital companies based there and a combined workforce of around 10,000.⁶

⁵https://www.liverpoolecho.co.uk/news/tv/filming-brings-176-million-liverpool-17451986

⁶https://www.leeds.gov.uk/business/economic-performance-and-key-sectors

UK Powerhouse table

GVA – Q3 2019

		GVA Q3 2019, £mn (annualised, constant 2015 prices)	Growth (YoY)
1.	Milton Keynes	13,900	2.1%
2.	Reading	7,800	2.0%
3.	Oxford	8,000	1.8%
4.	Peterborough	6,400	1.7%
5.	Cambridge	9,500	1.7%
6.	Southampton	7,400	1.7%
7.	Ipswich	4,900	1.6%
8.	Exeter	5,200	1.5%
9.	Birmingham	27,900	1.5%
10.	Inner London	296,300	1.5%
11.	London	432,300	1.5%
12.	Outer London	136,000	1.4%
13.	Bristol	14,100	1.4%
14.	Portsmouth	5,400	1.4%
15.	Derby	6,800	1.4%
16.	Manchester	21,600	1.3%
17.	Swindon	9,200	1.3%
18.	Brighton	8,000	1.2%
19.	Bournemouth	4,900	1.2%
20.	Leicester	8,000	1.2%

21.	Norwich	3,000	1.2%
22.	Aberdeen	11,600	1.2%
23.	Glasgow	19,600	1.2%
24.	Edinburgh	23,600	1.2%
25.	Nottingham	9,700	1.1%
26.	Greater Manchester	67,900	1.1%
27.	Stoke-on-Trent	5,400	1.1%
28.	Stockport	6,400	1.1%
29.	Newcastle	9,700	1.1%
30.	Doncaster	5,600	1.0%
31.	York	6,100	1.0%
32.	Wakefield	7,100	1.0%
33.	Leeds	25,100	1.0%
34.	Liverpool	12,800	0.9%
35.	Sheffield	12,100	0.9%
36.	Coventry	9,100	0.9%
37.	Rotherham	4,700	0.9%
38.	Plymouth	5,200	0.8%
39.	Wolverhampton	4,500	0.8%
40.	Bradford	9,000	0.7%
41.	Belfast	12,900	0.7%
42.	Hull	5,900	0.6%
43.	Middlesbrough	3,300	0.6%
44.	Swansea	5,100	0.6%
45.	Cardiff	11,700	0.5%
46.	Sunderland	7,100	0.4%

UK Powerhouse table

Employment – Q3 2019

		Employment level (Q3 2019)	Growth (YoY)
1.	Stoke-on-Trent	121,400	2.2%
2.	Cambridge	135,700	2.2%
3.	Inner London	3,435,900	2.1%
4.	Oxford	135,700	2.0%
5.	Liverpool	325,700	1.8%
6.	Belfast	124,300	1.7%
7.	London	5,163,200	1.7%
8.	Sunderland	137,400	1.6%
9.	Exeter	102,900	1.6%
10.	Manchester	483,100	1.5%
11.	Edinburgh	375,800	1.4%
12.	Leeds	464,500	1.3%
13.	Milton Keynes	156,400	1.3%
14.	Cardiff	251,700	1.3%
15.	Bournemouth	92,300	1.2%
16.	Peterborough	116,000	1.2%
17.	Sheffield	302,900	1.2%
18.	Birmingham	584,100	1.2%
19.	Brighton	147,700	1.2%
20.	Wolverhampton	125,200	1.0%

21.	Bristol	353,200	1.0%
22.	Derby	148,700	1.0%
23.	Swindon	120,900	0.9%
24.	Newcastle	214,800	0.9%
25.	Coventry	199,700	0.9%
26.	Hull	155,800	0.9%
27.	Rotherham	106,600	0.9%
28.	Greater Manchester	1,328,500	0.9%
29.	Outer London	1,727,300	0.8%
30.	Glasgow	436,700	0.8%
31.	Plymouth	145,100	0.8%
32.	York	121,000	0.8%
33.	Ipswich	82,600	0.8%
34.	Southampton	152,200	0.7%
35.	Norwich	136,200	0.6%
36.	Portsmouth	114,700	0.5%
37.	Leicester	205,400	0.5%
38.	Nottingham	227,300	0.5%
39.	Bradford	213,300	0.4%
40.	Aberdeen	177,900	0.3%
41.	Doncaster	131,500	0.3%
42.	Middlesbrough	74,500	0.3%
43.	Reading	120,700	0.2%
44.	Wakefield	143,600	-0.1%
45.	Stockport	116,700	-0.1%
46.	Swansea	114,900	-0.4%

Methodology

All UK Powerhouse forecasts in this report utilise Cebr’s central Brexit scenario. Cebr’s central forecasts are based on the assumption that the UK will reach an agreement with the EU and that a transitional arrangement will be put in place.

On the immigration policy, we rely on the lower immigration population estimates assuming that a visa system will be implemented for EU nationals, but that the requirements (e.g. the minimum salary, the NHS surcharge payment, the application fees, etc.) would be more relaxed than they currently are for non-EU nationals requiring a visa.