East of England on track for slow recovery led by Health and Education sectors, finds latest EY report

• Economies of four out of nine English regions – three of which are outside the South – are forecast to be smaller than 2019 level by 2023. Eastern region among those set to grow.
• Employment and output in the East of England is forecast to mirror the national average.
• Only London and South East are expected to employ more people in 2023 than 2019.
• City growth forecast to outpace regional growth – no region’s towns are expected to grow faster than their region overall.
• London, South East and North West economies have contracted the least in 2020; West Midlands, Yorkshire and Humber and East Midlands have contracted most.
• Opportunities to accelerate levelling up with focus on manufacturing, green projects, local decision-making and learning lessons from pandemic.

Although the report says that the ‘levelling up’ agenda can accelerate with targeted government and local action, and if lessons are learned from the pandemic’s impact on work-life balances.

When measured by Gross Value Added (GVA), the economies of just five out of nine English regions are forecast to be larger in 2023 than they were in 2019. Three of these regions are in the South: London (0.51% annual growth forecast); the South East (0.39%); and East (0.08%). Annual growth is also expected in the North West (0.11%), while marginal growth (0.01%) is forecast in the East Midlands.

As is the case across the country, the East of England’s cities are expected to see a faster recovery than the region’s towns, with city GVA forecast to expand at annual average rate of 0.48% between 2019 and 2023 (the fourth highest rate outside of London), while Eastern towns are expected to see annual average growth of 0.06% – the fastest rate of growth for a region’s towns outside of London and the South East.

The region’s economy is expected to have declined -12.11% over the course of 2020 – in line with the national average. The region’s cities and towns are expected to see declines of -12.54% and 12.1%, respectively.

Employment in the region is expected to see the equivalent of an annual average decline of -0.12% between 2019-23, although cities are expected to see employment expand by the equivalent of 0.23% a year over the same period.

Of the region’s cities and towns, Cambridge is set to recover quickest, with an annual average GVA increase of 0.48% expected between 2019 and 2023. Growth will be led by forecast GVA increases in real estate (average annual increase of 1.13% between 2019-23), retail (0.93%) and health (0.85%).

Stuart Wilkinson, Office Managing Partner at EY in the East of England (pictured), said: “It’s not at all surprising that Cambridge is forecast to bounce back quicker from the effects of the COVID-19 pandemic than other areas of the region. Its reputation as a centre for Life Science, Health and Professional, Scientific & Social Work has meant it’s been better able to weather the economic impacts of COVID-19 and in some case, businesses who have played a part in researching and developing solutions to the pandemic have flourished.

“However, while Cambridge may have benefitted, the rest of the region will find recovery slower, especially those areas that have more businesses operating in sectors more exposed to the pandemic, such as manufacturing or back office services. These include Luton, Peterborough, and Bedford.

“The Arts, Entertainment & Recreation sector, which includes Leisure & Tourism, is expected to recover slowly in some areas of the region, including in Norwich, which is forecast to see GVA fall short of its 2019 level by the equivalent of a -1.23% annual decline by 2023. This follows a -27.56% decline in 2020. “It’s a similar picture for Southend-on-Sea, where arts GVA declined -26.53% in 2020, and is forecast to see the equivalent of an annual average decline of -0.86% between 2019 and 2023.”

Mixed nationwide picture

Nationwide, of the four regional economies expected to be below their 2019 sizes by 2023, three are outside the South: Yorkshire and Humber (equivalent to a -0.31% annual decline in GVA forecast); the North East (-0.29%); and West Midlands (-0.26%). The South West’s 2023 GVA is expected to be lower than 2019’s level by the equivalent of a -0.17% annual decline.

Meanwhile, only the South East and London are forecast to employ more people in 2023 compared to 2019. At the same time, cities are expected to outperform their regions in economic and employment growth by 2023, while no region’s towns are forecast to outpace their region overall.

Rohan Malik, EY’s UK&I Managing Partner Government and Infrastructure, comments: “The economy faces a lopsided recovery which risks setting back the UK’s levelling up agenda unless concerted action is taken. Although images of empty city streets have attracted attention over the past nine months, the numbers show that the pandemic’s impact has been most keenly felt elsewhere.

“The high value-added services that are the lifeblood of city and South Eastern economies have continued throughout the year – albeit often from home. Manufacturing, arts and leisure, and hospitality – vital parts of the economies in towns, the Midlands and the North – have been most affected during the pandemic or are likely to take longer to recover.

Rohan Malik adds: “Despite a challenging backdrop, there are opportunities to reshape the country’s economic geography. The Government’s recent initiatives, including the Levelling-up Fund and National Infrastructure Strategy, are welcome, but new approaches are required to avoid a growing gap between towns and cities, and North and South.

“Some of the recent shifts in how we organise work and home life have been positive for economic rebalancing and mean there could be opportunities to create ‘virtual’ jobs in places that have found it difficult to attract higher value-added sectors. A policy focus on supporting sectors, like manufacturing, which matter to both investors and towns would help.

“The shift to a ‘net zero’ economy also presents a significant green opportunity for the UK. The Government’s target of a 68% cut in annual carbon emissions and the new 10-point plan should provide impetus to green investment in projects – including offshore wind and carbon capture – which will typically be located outside major cities.”

“Crucially, the Government must avoid a top-down approach: boosting local capabilities and understanding local characteristics should be the starting point for working up to national policy frameworks.”

Pandemic’s impact uneven across sectors, towns and cities

The report shows that the uneven distribution of economic sectors across the country has had a striking impact on the economic performance of England’s regions, towns and cities in 2020.

Regionally, London (-10.4%), the South East (-11.37%) and the North West (-11.75%) have seen the smallest declines in GVA over 2020. This is partly because these regions have the highest share of sectors likely to have been least affected by lockdown restrictions on activity, including financial and professional services and IT. Among other factors, these sectors were able to move a significant share of activity online during the pandemic.

GVA has fallen furthest in 2020 in the West Midlands (-13.58%), Yorkshire and Humber (-12.77%), and East Midlands (-12.45%). Manufacturing is the dominant sector in each of these region’s economies, accounting for approximately 15% of total GVA in each region – nationwide, manufacturing GVA fell by -12.14% over the course of the year.

The difference between towns and cities is starkest in the employment numbers: cities have seen employment fall by -0.47% in 2020, while towns have seen employment fall by -1.23%.

Stuart Wilkinson says: “To accelerate the levelling up agenda, the Government’s aim should be to tailor sector opportunities to local conditions. These should dictate what is needed for investment in skills, transport, digital and social infrastructure. Once plans are agreed, resources should be released to local control for delivery wherever practical.”

Growing regional divide forecast if urgent action not taken

According to the report, just over half of the UK’s major economic sectors will have grown in GVA terms by 2023 compared to 2019.

The biggest growth by 2023 is expected in health (0.92% annual increase in GVA), professional services (0.78%), and IT (0.76%). The greatest shortfalls relative to 2019 are expected in manufacturing (-1.83%), hospitality (-1.36%), and arts and leisure (-1.29%).

While only four non-London regions are expected to grow by 2023 overall, the city economies in six non-London regions are expected to grow over the same period (South East, North West, East, East Midlands, South West, North East). In contrast, the town economies in just three regions (the North West, East and South East) are expected to grow by 2023.

And, while the South East is the only non-London region expected to see an overall increase in employment by 2023, the city economies of six regions are forecast to add jobs (South East, North West, East, East Midlands, South West, North East). Only the South East’s towns are expected to increase employment by 2023, however.

Stuart Wilkinson says: “Growth is forecast to be driven by high-end services which dominate city economies so, while the outlook for levelling up is disappointing, it is perhaps not surprising. By weakening the sectors that towns are most dependent on, COVID-19 has made levelling up harder.

“Looking ahead, manufacturing will be key to the levelling up agenda. An estimated 86% of manufacturing activity is located in towns or smaller cities outside the South East, while our recent UK Attractiveness Survey found significant investor interest in reshaping manufacturing supply chains and reshoring activity to the UK. Although a difficult near-term is forecast for the sector, opportunities are there longer-term.

“Technology will play a major role in the sector’s future, so the UK can compete in a way that was not possible when labour costs drove location decisions. A relaunched Industrial Strategy should target emerging opportunities here.”

East of England – Comparison