Much has been made in recent years of the north south divide and the various political parties plans to spread prosperity to all Britain’s regions after warnings that economic activity is becoming ever more concentrated in London and the South-East. But is it having any impact or is the South still fuelling the UK economy?
The region has a thriving business community. The latest statistics and forecasts are really encouraging for the region with both economic and employment levels predicting strong growth over the next few years.
On current trends, the two most prosperous regions – London and the South East - would account for 40% of national output by the end of the next parliament in 2022. This represents a continuing upward trend from 33% in 1997, to 37.7% in 2015 (using the latest available data).
London in particular, has expanded rapidly over the last two decades from 18.7% of GDP to 22.7% between 1997 and 2015 and with a further estimated increase to 24.8% of GDP by 2022. When looking at business population, the two regions house a third of all UK businesses (1.1 million in London and 929,000 in the South East). And this increases every year by about 30k (with 158k businesses starting-up whilst 130k close). The number of businesses per person is higher in southern England than elsewhere in the UK.
It is clear then that London and the South-east are still greatly influencing the UK economy, but business sentiment is cautionary and only time will tell if this affects latest forecasts.
This cautionary stance is being driven by the furore around Brexit and the ongoing discussions as to what the future agreement will look like. But this is the same for businesses whether they are based in the south or the north. We see many businesses who are unsure of whether to invest in growth or hold off until matters resolve themselves. This is perhaps reflected in recent findings by BVA – BDRC whose SME monitor revealed that SME demand for finance is reducing – with only 4% experiencing an event which instigated a search for funding despite there being availability of finance from funders. We need SMEs to be investing in growth to support the economy. For those SMEs who grasp the nettle there are funds available and they will most likely succeed rather than waiting for the outcome of EU talks.
London and the South East may take a dip from the impact of the loss of Carillion and the knock-on effect of that on the supply chain. Insolvencies are up. However, this is presenting opportunities as the repackaged firms require funding to get off to a strong start.
The region has many infrastructure investments coming to the fore. Crossrail is one significant development which will improve links to London and its services and will create business for those involved in this area and support the creation of jobs. The region which accounts for 35% of the UK’s business population with 2 million private sector businesses in London and the South East.
The South-East is forecast to deliver the highest economic growth amongst the 12 UK regions in 2019 after an already strong performance in 2018, according to PwC’s latest UK Economic Outlook. It shows economic growth in the South East in 2018 is forecast to tie with London for top-place with growth of 1.6%, but should edge up to around 1.7% in 2019, while London and overall UK growth will remain at around 1.6%.
Recent data from the Office for National Statistics (ONS) show that the South East witnessed the third largest rise in its employment rate in 2017. Just behind the North East and the East of England, the South East saw its employment rate grow by around 1.3% in the year.
A detailed comparison of the UK regions’ relative performance over the past two decades suggests that there is a positive relationship between relative regional GVA growth rates in regions like the South East and high levels of education and skills, business formation and employment in professional and technical services.
London and the South East demonstrates many of the key ingredients for continued growth - high levels of manufacturing output, equally higher levels of professional, technical and service growth and the highest level of education in the UK. But despite such positivity, its growth levels are still less than half the level delivered pre-recession.
The region must not rest on its laurels. It needs to stimulate greater levels of investment trade and export across the region, particularly amongst our private business sectors, if we are to make the best of the assets and strengths at our disposal.