The State of Britain


Thames Valley Berkshire LEP the most productive but the best productivity growth in Coventry and Warwickshire, the East Midlands has the wealthiest and poorest parts of the UK

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ONS figures last month demonstrated that high levels of hours worked and high productivity in London and the South East pulled up the UK average so much that the other ten ‘regions’ of the UK fell below it.

The ONS has now released data for a longer period and at a subregional level.

Perhaps the most useful is the 2018 results for the 44 enterprise regions in the UK which comprise the 38 English local enterprise partnerships (LEPs) and six enterprise regions in Scotland, Wales and the border regions.

Thames Valley Berkshire LEP had the best productivity (in terms of hours and jobs) in 2018 at 35% above the UK average whereas the Black Country LEP at 24% below was the worst. Labour productivity increased in 32 out of 44 enterprise regions in the UK between 2010 and 2018.

In terms of productivity growth between 2010 and 2018 the Coventry and Warwickshire LEP was top with growth of 16%. Twelve economic regions recorded productivity levels lower in 2018 than 2010. The worst performer was the Buckinghamshire Thames Valley LEP which saw productivity drop by 11%.

The UK is divided into 168 statistical areas, of this labour productivity increased in 105. The highest productivity growth over 2010 to 2018 occurred in areas of West London followed by Warwickshire, Solihull and Milton Keynes. Tower Hamlets in London was best and had productivity 75% above the UK average whereas Powys in Wales was the worst at –43%.

The UK is also divided into 41 larger statistical areas, of these Inner London West had the highest productivity at 48% above the UK average. Four other areas of London were also in the top 10 subregions with the highest labour productivity outside London seen in Berkshire, Buckinghamshire and Oxfordshire, with labour productivity 17% above the UK average. Overall, 11 out of the 41 areas had labour productivity above the UK average.

The ONS has also published average household disposal income estimates for England and Wales in 2018. The incomes shown are after tax and housing costs are taken off.  The analysis has shown that 87% of 7201 local areas had an average household income of between £22,500 and £39,200; within this over a third were between £28,000 and £33,600.

Of the 50 areas with the highest total incomes, 41 were in London with the lowest incomes more widely spread geographically across England and Wales. The North East, East England, London, and the South East had no local areas in the bottom 50.

The wealthiest area in England and Wales was Mickleover in Derby with incomes of £52,200 and the poorest was Highfield North in Leicester with £12,500. The two areas are 30 miles from each other and ranked 7200 places apart.

UK stats

UK GDP showed no growth in the three months to January and there was no growth in the month itself. Over the quarter, construction performed well and was up by 1.4% but production fell by 1% and services were flat. Annual growth was 1.1%.

GDP rose by 0.1% in the euro area and by 0.2% in the EU27 during the fourth quarter of 2019, according to Eurostat. Annually GDP rose by 1% in the euro area and by 1.2% in the EU27.

Key European economies remain sluggish; over the quarter Germany was at a standstill and France contracted by 0.1%, with Italy shrinking by 0.3%. Annually, Germany grew by 0.5% and France by 0.9% with 0.1% growth in Italy.

The UK labour market was largely unchanged, with the level of employment increasing to a record high of 32.99m and the level of unemployment stable at 1.34m or 3.9%.

The euro area unemployment rate was 7.4% in January 2020, with the EU27 rate at 6.6%. The lowest unemployment rate in January 2020 was 2% in the Czech Republic and the highest was 16.5% in Greece.

UK inflation was 1.7% in February 2020 down from 1.8% in January. Key downward contributions came from motor fuels, games, toys and hobbies with the biggest risers housing, water, electricity and gas.

Euro area annual inflation was 1.2% in February, down from 1.4% in January. European Union annual inflation was 1.6% in February 2020, down from 1.7% in January. A year earlier, the Euro area rate was 1.5%.

The UK public sector deficit in February was £0.3bn, £0.3bn less than in February 2019. Debt at the end of February 2020 was £1,791bn, 79.1% of GDP, a decrease of 1.1% on February 2019.

London top of the ‘regional’ leagues but Scotland takes the productivity growth crown, and regional economies more exposed to manufacturing suffer Brexit buffeting

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First, the ESCoE nowcast for the 12 months ended December 2019 on a rolling 4 quarter basis. This flagged UK growth at 1.4%, growth in London ranked top at 3.3% and growth in the East Midlands ranked last at 0.1%.

But official ONS figures for an earlier period showed the East Midlands faring better. These figures are for the period six months before ESCoE’s estimates shown above and compare GDP in the quarter ended June 2019 with the same quarter a year earlier.

According to these more volatile figures, the East Midlands economy grew by 1.8%, down from 2% growth which placed the East Midlands second out of the twelve UK ‘regions.’ Again London topped the table with growth of 4.5% whilst UK growth over the same period was 1.4%. On these stats the North West economy was the worst performer and contracted by 0.7%, one of three regions in the UK to suffer a decline.

In the same report, there was no surprise that the ONS’s figures also highlighted that the standalone quarter to June 2019 was worse for the North West than the previous quarter. The North West economy declined by 1.6% in April to June 2019 placing the North West joint last (with the West Midlands) out of the twelve UK ‘regions.

On these figures six regions of the UK saw their economies contract as did the UK overall by 0.2%. At 1% London grew the most.

ONS productivity per hour figures had two regions above the UK average in 2018, London, +31.6% and the South East +9.1%. These regions record high levels of hours worked and their high productivity pulls up the UK average so much that all other regions fall below it. Wales was furthest off the average at -17.2%.

In terms of output per job, London was a bigger outlier, at 40.5% above the average. Again Wales was furthest off the average at -18.2%.

On productivity growth in output per hour, six regions of the UK expanded. At 2.3%, growth was fastest in Scotland and the biggest contraction was in Yorkshire and the Humber at 2.5%. UK growth and growth in London were both 0.5%.

On average, in 2018 the UK economy produced about £35 of value for each hour worked, with finance and insurance top at c£69 per hour compared with accommodation and service activities productivity at c£17 per hour.

Also ONS earnings figures showed UK average earnings grew by 2.9% or by 1.4% after inflation. London had the highest average earnings of £805 and the lowest average earnings of £530 were recorded in the North East.

UK stats

UK GDP showed no growth in the three months to December although there was growth of 0.3% in the month itself. Over the quarter, construction performed well and was up by 1.5% but production fell by 0.8% and services grew by 0.1%. Annual growth was 1.1%.

GDP rose by 0.1% in both the euro area and the EU28 during the fourth quarter of 2019, according to Eurostat. Annually GDP rose by 0.9% in the euro area and by 1.1% in the EU28.

Key European economies remain sluggish; over the quarter Germany was at a standstill and France contracted by 0.1%, with Italy shrinking by 0.3%. Annually Germany grew by 0.5% and France by 0.8% with no growth in Italy.

The UK labour market was largely unchanged, with the level of employment increasing to a record high of 32.93m and the level of unemployment decreasing to 1.29m or 3.8%.

The euro area unemployment rate was 7.4% in December 2019, with the EU28 rate at 6.2%. The lowest unemployment rate in December 2019 was 2% in the Czech Republic and the highest was 16.6% in Greece.

UK inflation rate was 1.8% in January 2019, up from 1.4% in December. Key downward contributions came from furniture and furnishings, in particular settees and double beds, with the biggest risers electricity prices, fuels and lubricants, clothing and airfares.

Euro area annual inflation was 1.4% in January, up from 1.3% in December. European Union annual inflation was 1.7% in January 2020, up from 1.6% in December. A year earlier, the Euro area rate was 1.5%.

The UK public sector surplus in January was £9.8bn, £2.1bn less than in January 2019. Debt at the end of January 2020 was £1,798bn, 79.6% of GDP, a decrease of 0.7% on January 2019.

Airlines, rail, film, airports, ships, legal firms, energy supply and banking – no sector seems off limits to state intervention

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Few would argue that where there is market failure then an intervention by the state can be justified, however, many would argue that the interventions of the 1970s were largely horror shows which dragged down the state itself, everything else lies in the middle.

First Carillion and Thomas Cook were batted away, then even British Steel (for now at least) did not receive largesse from the state, but since then a number of industries have seen interventions.

Early in the month ministers intervened in the airline sector, confirming that Flybe will receive state support because of its regional connectivity role. The rescue deal details are unclear, but appear to offer deferral on the firm’s Air Passenger Duty (APD) and a short-term loan. Connect Airways – the consortium that includes Virgin Atlantic, Cyrus Capital and Stobart Group – which owns Flybe, will also inject another £30m into the business.

On rail, the government’s nationalisation of Northern Rail has thrown the South Western Railway and Transpennine franchises into sharper focus. The service offered by Northern Rail appeared beyond the pale, but interventionists beware, more than a year after Transport for Wales took over the Welsh rail franchise, overcrowding and poor punctuality continue, with the firm admitting improvements have been slower than they would have liked. Transport for Wales is a not-for-profit company owned by the Welsh Government, which is no doubt glad the contract is managed at ‘arms length’ by its appointed board.

Still with Wales, but now on airports, a Welsh Government spokesman has said state owned Cardiff Airport adds c£250m GVA to the Welsh economy and sustains around 2,400 aviation related jobs.

Last year a new tax payer loan was announced bringing the total amount of cash the airport can borrow from the Welsh Government to £59.4m. Most of the original loan of £38.2 has already been drawn down according to officials, which suggests the new £21.2m blurs the line between investment and working capital. 

Its latest accounts show the airport made a pre-tax loss of £18.5m in 2018/19 and barely recorded a positive EBITDA figure. Welsh ministers paid another £52m in 2013 to buy the airport. At c£80m of public money already deployed to keep the airport operating, and with a further £21m now at risk, the economic case looks increasingly thin.

Also on airports, but this time in Scotland, additional loans of £33m to keep Prestwick Airport afloat are now worthless the Auditor General for Scotland has said. Last month Holyrood Transport Secretary, Michael Matheson, said he had accepted a recommendation from the airport’s operators to appoint a preferred bidder but was not able yet to disclose the identity of the purchaser involved.

From ships, to fabrication, to steel, Scottish taxpayers have had to recently write off nearly £140m in loans and guarantees largely to private companies according to Auditor General Caroline Gardner. They include a £45m loan to the Ferguson shipyard on the Clyde, a £21m guarantee repayment fee from Liberty Steel and a taxpayer loan of £37m to the BiFab fabrication company, which is now valued at £2m.

On banking, the Scottish government has committed £2bn of taxpayers’ money to fund the Scottish National Investment Bank over the next decade after MSPs passed the necessary legislation. Whether there is sufficient market failure to warrant state intervention in business finance on this scale remains a moot point.

In the semiconductor trade, Diodes Incorporated, which took over Texas Instrument’s Greenock site last year, is set to receive a £14m taxpayer inducement from Scottish Enterprise. The funds form part of a £47m investment in upgrading the site and training the 300-strong workforce. The company has also received funding from Inverclyde Council to assist with the development of the site.

In the film business, the Tynwald’s enquiry into the island’s foray into the industry has found the Isle of Man government gambled £60m of taxpayers’ money via the island’s Media Development Fund between 2007 and 2016; £32m has so far been returned from the investments.

On the legal sector, a law company set up by Northamptonshire, Central Bedfordshire and Cambridgeshire county councils has recorded a £1.2m loss. The firm, LGSS Law, is owned by the three councils and offers public sector legal services. It is understood that sizeable overdrafts offered by Northamptonshire and Cambridgeshire County Councils have been largely drawn down

A new energy supplier for London, backed by City Hall, has been launched. London Power is not a London Assembly owned business, however, although the exact details of the deal between the Mayor and Octopus Energy are not known.

Highlighting the problems which can occur when the state gets involved in energy businesses, Bristol City Council owned Bristol Energy lost c£10m last year. Bristol Energy was set up in 2016 to provide ethically sourced, low-cost power and return a profit for Bristol taxpayers; instead the venture has so far soaked up £37m of public funds. Nottingham council owned Robin Hood Energy has likewise required taxpayer bailouts.

Interventions’ with public money are a risky business.

The awfulness of the pre-1997 ‘golden age’ of British Rail has been all too quickly forgotten but the state must retain the right to intervene where the imperfect system which replaced BR fails.  On the other hand, whilst connectivity (Flybe) and inducements to win internationally mobile projects (Diodes Incorporated) might on the face of it warrant state intervention, forays into film, airports, ships, fabrication yards and the steel industry begin to ring alarm bells.

And then there was HS2.

National stats

UK GDP increased by 0.1% in the three months to November although there was a contraction of 0.3% in the month itself. Over the quarter, construction performed well and was up by 1.1% but production fell by 0.6%, with manufacturing down by 0.8%; services grew by 0.1%. Annual growth was 1.1%.

GDP rose by 0.1% in both the euro area and the EU28 during the fourth quarter of 2019, according to Eurostat. Annually GDP rose by 1% in the euro area and by 1.4% in the EU28.

Key European economies remain sluggish; over the quarter Germany has grown by 0.1% but France contracted by 0.1%, with Italy shrinking by 0.3%. Annually Germany grew by 0.5%, France by 0.8% but Italy was at a standstill.

The UK labour market was largely unchanged, with the level of employment increasing by 359,000 to a record high of 32.9m and the level of unemployment decreasing by 64,000 to 1.31m or 3.8%. Average earnings grew by 3.2% in the year to November or by 1.6% after inflation.

The euro area unemployment rate was 7.4% in December 2019, with the EU28 rate at 6.2%. The lowest unemployment rate in December 2019 was 2% in the Czech Republic and the highest was 16.6% in Greece.

The UK inflation rate was 1.4% in December 2019, down from 1.5% in November. Key downward contributions came from accommodation services and clothing with the biggest risers housing, water, electricity, gas and other fuels.

Euro area annual inflation was 1.3% in December, up from 1% in November. European Union annual inflation was 1.6% in December 2019, up from 1.3% in November. A year earlier, the Euro rate was 1.5%.

Public sector borrowing in December was £4.8bn, £200m less than in December 2018.

Debt at the end of December 2019 was £1,819bn, 80.8% of GDP, a decrease of 0.9% on December 2018.

Falkirk tops the UK growth league

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According to ONS figures out this month, in 2018 the highest annual growth rate seen in the 179  local areas of the UK was 10.5%, in Falkirk, the lowest level was in Mid and East Antrim at -10.1%, a 20% swing. So what has gone well in Falkirk?

On the face of it, Mid and East Antrim town, Ballymena, is not dissimilar to Falkirk. However, in 2018 people in Falkirk increased GDP from £29,869 to £33,868, whereas in Ballymena there was a c£5K drop to £29,885.  Both areas are close to the capital cities of devolved administrations, where Belfast had GDP per head of £44,332 in 2018 and Edinburgh had £51,224.

Ballymena has a central location in Northern Ireland and is connected to the M2 motorway. It has a station on the Belfast/Londonderry railway line and Belfast International Airport is only 18 miles away and Belfast City Airport is also accessible. The area is also close to the ports of Larne and Belfast, 20 and 27 miles away respectively.

Falkirk also occupies a central location in Scotland, with direct access to the north-south (M9) and east-west (M876) motorway networks. Falkirk High is on the main Glasgow-Edinburgh line, with four trains an hour to either city. Falkirk Grahamston is on the Edinburgh to Dunblane Line which has frequent connections to Edinburgh. The town also has a direct rail service to London. 

Additionally Falkirk has bus services to Stirling, Edinburgh and Glasgow and sits on the junction of the Forth & Clyde and Union Canals. Glasgow and Edinburgh airports can be reached within an hour.

So both Ballymena and Falkirk have good rail and motorway links to major cities, both are close to international airports and Grangemouth and Larne are both active ports. Why the difference?

Whereas the economy of Falkirk has tilted towards retail and services in recent years, away from the heavy industries and manufacturing sectors of the pre 1980s, Ballymena has not restructured so successfully.

In April 2018, Ballymena saw production at the town’s Michelin’s tyre factory end after 50 years. The 840 headcount fell over a two year period at the site after the company announced in November 2015 that it was closing the factory. Then, at the end of 2017, the JTI Gallaher cigarette factory closed with the loss of another c800 jobs.

In September last year, the Ballymena-based bus manufacturer Wrightbus was placed into administration and put up for sale, with c1,200 staff losing their jobs. Since then the facility has completed its first delivery of new buses following the company’s acquisition in October by new owners Bamford Bus Company.

If Ballymena has been too dependent on manufacturing, then what has Falkirk got right?

A major catalyst for change was a millennium project, the £17.5m Falkirk Wheel, which re-connected the cross country Forth & Clyde Canal with the Union Canal from Edinburgh. The wheel, which is a rotating boat lift, was opened in 2002, and attracts c500,000 visitors a year (more than 7m since it opened.)  

Also in Falkirk, the Kelpies, 30-metre-high horse-head sculptures depicting kelpies (water spirits) are seen by c560,000 people a year. The £5m horse sculpture was commissioned as part of the £43m Helix regeneration project, a partnership between Falkirk Council and British Waterways which received a £25m grant from the Big Lottery fund. Tourism now generates £110m+ for the local economy and employs nearly 2,000 workers in the area.

As well as flagship regeneration projects, Falkirk has also been successful in attracting investment from businesses of all sizes to the area. Glasgow University spin out, scanning technology company Lynkeos, established its headquarters in Falkirk and Ian MacLeod Distillers is hoping to reopen the Rosebank Distillery in 2020. Despite its recent takeover by a Canadian firm, Alexander Dennis, one of the world’s largest bus manufacturers, is headquartered in Falkirk with a factory nearby.

The Falkirk area is also set to benefit from the £1bn worth of investment earmarked for the UK by chemical giant Ineos. In February 2019, the firm said part of this investment includes building a £350m new steam and power energy plant at Grangemouth. Grangemouth benefited from earlier investment from Ineos in 2016, when the firm chose the port to transit US shale gas (used to create plastic pellets for general manufacturing.)

Good fortune or well planned, well executed economic development?  Falkirk Council and Scottish Enterprise are likely to argue the latter but it’s probably a bit of both. Who takes the plaudits is a moot point, but according to the ONS’s growth figures, there is credit due

The UK avoids recession, London is the ‘regional’ star performer and Northern Ireland steals the South West’s low unemployment crown

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On regional stats, and following its first publication of quarterly GDP estimates for the regions in September, the ONS has now published its next estimates for the nine English regions, and Wales, for the year to March 2019. GDP figures have been available for the UK since the 1940s, for Scotland since 2002 and Northern Ireland since 2013.

The figures showed that London’s economy grew by 4.2%, up from 2.3% the previous quarter. This placed the capital top (previously fourth) out of the twelve UK ‘regions.’

Yorkshire and the Humber was bottom of the rankings at -0.3%, and propelled by a drive to meet the original March 31st Brexit date, UK growth over the same period was 2.2%.

The ONS figures also showed that growth in London’s economy accelerated in the quarter to March 2019. The capital’s economy grew by the most in the UK, 1.2% in January to March. Contractions of 0.2% were seen in Yorkshire and The Humber and the East Midlands, although Wales was bottom with -0.5%.

Estimates published by ESCoE last month for the year ended September 2019, a more recent period than the ONS figures, ranked London top (previous ranking also first) with growth of 2.3%. Using this metric, UK growth was 1.45% which compared with growth in the South West of England (bottom) at 0.41%

More data from the ONS showed that unemployment fell between July and September; the decrease of 0.1% took the overall rate to 3.8%. Northern Ireland had the lowest rate of 2.5%. The highest rate was 5.9% which was recorded in the North East.

The South West had the highest employment rate at 81.0% which compared with 71.2% in the North East; the UK rate was 76.0%.

In September, average earnings in Wales were down by £55 to £527 per week, the lowest in the UK. London had the highest average earnings of £830.

The biggest jump in earnings was £32 per week in the East of England. In the UK overall, average earnings grew by 3.6% or by 1.8% after inflation.

Welsh average property prices fell by 2.8%, the biggest drop in the UK over the month. The largest increase was in Northern Ireland where prices increased by 2.3%. UK prices fell by 0.2% to £234,370 during September.

The lowest annual growth was in London, where prices fell by 0.4% over the year to September 2019. The highest annual growth in England was in the North West, where prices grew by 2.8% and in the UK, Northern Ireland house prices grew the most, at 4.0%. The UK annual growth rate was 1.3%.

National stats

A recession was avoided when the ONS said UK GDP increased by 0.3% in the three months to September although there was a contraction of 0.1% in the month itself.

The services sector was the main driver of growth, up by 0.4%. Construction also performed well but production, especially manufacturing, was flat in the three months to September 2019. The trade deficit narrowed, mainly due to growing exports of both goods and services. Annual growth dropped to 1.0%.

GDP rose by 0.2% in the euro area and by 0.3% in the EU28 during the third quarter of 2019, according to Eurostat. Annually GDP rose by 1.2% in the euro area and by 1.3% in the EU28.

Key European economies remain sluggish; Germany has grown by 0.5% and France by 1.3%, with Italy at last showing some growth of 0.3%.

The UK labour market was largely unchanged, with the level of employment falling by 58,000 to 32.75m and the level of unemployment decreasing by 23,000 to 1.31m or 3.8%.

An increase in average hours meant that total hours worked was unchanged in Q3 to some extent offsetting the drop in employment. Average earnings grew by 3.6% in the year to September, compared with the previous figure of 3.8%.

The euro area unemployment rate was 7.5% in September 2019, with the EU28 rate at 6.3%. The lowest unemployment rate in September 2019 was 2.1% in the Czech Republic and the highest was 16.9% in Greece.

The UK inflation rate was 1.5% in October 2019, down from 1.7% in September. Key downward contributions came from electricity, gas and other fuels as a result of changes to the energy price cap. Further downward contributions from furniture, household equipment and maintenance; and recreation and culture, were partially offset by rises in clothing and footwear prices.

Euro area annual inflation was 0.7% in October 2019, down from 0.8% in September. European Union annual inflation was 1.1% in October 2019, down from 1.2% in September. A year earlier, the rate was 2.3%.

Public sector borrowing in October was £11.2bn, £2.3bn more than in October 2018.

This is the highest October borrowing for five years. Debt at the end of October 2019 was £1,798.5bn, 80.4% of GDP, a decrease of 1.1% on October 2018.

UK productivity problems persist, a decade of deficit reduction ends, and we are all a little happier

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The UK’s productivity puzzle continued, with productivity in the UK falling at its fastest annual pace in five years in the April-to-June quarter, according to the ONS.

The figure – measured by output per hour – fell by 0.5% after two previous quarters of zero growth. Both services and manufacturing saw a fall from April to June. Few would deny the fall is unwelcome, but we do have more people employed than ever before.

In response, the Government announced an £88m cash injection aimed at the next generation of supercomputers, and research into productivity imbalances, poor management practices and skills investment.

The £88m comes out of the Strategic Priorities Fund, which supports high quality multidisciplinary R&D as part of the government’s aim to invest at least 2.4% of GDP in research and development by 2027.

The last regional productivity figures show Inner West London had the highest labour productivity at 50% above the UK average, while the highest labour productivity level outside of London was in Berkshire, Buckinghamshire and Oxfordshire, a drop to 14% above the UK average. The lowest level was in Cornwall and Isles of Scilly at 32% below the UK average.

In a recent speech, former London Mayor, Boris Johnson, said he wants London’s vigour to spread into the regions, boosting productivity, growth and tax revenue.

London attracts the highest qualified workers, denuding underperforming regions of those most able to be productive. London is also much better at attracting inward investment from highly productive multi-national companies. Productivity is also highest among larger companies but in many regions of the UK, small companies dominate.

But let’s not forget, last month the current Mayor of London, Sadiq Khan, launched a report highlighting London’s contribution to the UK economy. Khan’s report outlined the economic case for how success for the capital means success for the UK as a whole.

In its latest estimate of regional public spending and regional tax revenues in 2018, the ONS concluded that only three regions ran a surplus and contributed c£60bn to the Treasury, of this London’s £34.3bn was by far the largest.

Killing the goose that lays the golden egg would be foolish. Instead let’s get regional policy right.

The Stats

The ONS said UK GDP fell by 0.1% in August but in the three months to August it grew by 0.3%. A weak performance across manufacturing was offset with TV and film production helping to boost the services sector. Annual growth is 1.3%.

GDP rose by 0.2% in the euro area and by 0.3% in the EU28 during the third quarter of 2019, according to a flash estimate by Eurostat. Annually GDP rose by 1.1% in the euro area and by 1.4% in the EU28. Key European economies remain sluggish; Germany has grown by 0.4% and France by 1.3%, with Italy at last showing some growth of 0.3%.

The UK labour market showed signs of slowing, with the level of employment falling by 56,000 to 32.69m and the level of unemployment increasing by 22,000 to 1.31m or 3.9%.

The euro area unemployment rate was 7.5% in September 2019 with the EU28 rate at 6.3%. The lowest unemployment rate in September 2019 was 2.1% in the Czech Republic and the highest was 16.9% in Greece.

The UK inflation rate was 1.7% in September 2019, unchanged from August 2019. Key downward contributions came from motor fuels, second-hand cars, and electricity, gas and other fuels. These were offset by upward movements from furniture, household appliances, hotel overnight stays, and from recreation and culture items.

Euro area annual inflation is expected to be 0.7% in October 2019, down from 0.8% in September, according to a flash estimate from Eurostat.

British public sector borrowing rose by 21.6% in the first half of the tax year, ending a decade of deficit reduction. Public sector net borrowing in September totalled £9.4bn, excluding public-sector banks, up from £8.8bn in September 2018.

This took borrowing in the six months from April to £40.3bn. Due to increasing public spending the government is on course to miss its target of keeping borrowing below 2% of gross domestic product in 2020/21.

ONS house price data showed average house prices increased by 1.3% in the year to August 2019, up from 0.8% in July 2019. Over the past three years, there has been a general slowdown in UK house price growth, driven mainly by a slowdown in the south and east of England.

The lowest annual growth was in London, where prices fell by 1.4% over the year to August 2019. The highest annual growth in England was in the North East, where prices grew by 3.3% and in the UK, Welsh house prices grew the most, at 4.5%.

Despite continual Brexit woes, we are all a little happier according to the ONS. In the year ending March 2019, there was a slight improvement in average happiness ratings although anxiety ratings increased in Northern Ireland which brought the Province back into line with other UK countries on this measure.

Folk in the Orkney, Western and Shetland Islands and Fermanagh and Omagh in Northern Ireland were the happiest. Residents in the London boroughs of Lambeth, Hackney, Islington and Camden were the most miserable.

Jaywick in the headlines again, the time for regional policy innovation and the ‘Boris Bridge’ to the Emerald Isle

Reading Time: 5 minutesThe effectiveness of regional policy was in the spotlight following the Government’s publication of its deprivation index which looks at an area’s levels of income, employment, education, health and crime as well as housing services and living environment. Jaywick in Essex, again made the headlines and was still the most deprived area of the UK. Geographically though Jaywick was an outlier, the town was followed by nine deprived areas of the North West, most noticeably Blackpool, but then, and despite the wealth passing through it, Anfield.

In terms of local authorities, 49% of Middleborough and Liverpool had deprived areas, Knowsley, Hull and Manchester were next. The first authority from the ‘southern’ half of the country was Great Yarmouth at 25th. What was most significant though, was that in terms of performance since 2015, nine of the top ten areas that have seen deprivation accelerate the fastest in the UK were in the north. Oldham topped the list and saw deprivation increase by c8%, only Worcester appeared to prevent a northern clean sweep. Eight of the ten most improved areas were in London, with Copeland the only northern authority to appear.

In fairness, there was a northern bias to the 100 English towns targeted by the government’s new £3.6bn Towns Fund but this money is unlikely to shift the dial much. Time to try something different? Like him or loath him, Donald Trump’s Opportunity Zones appear to be making a difference in the American Rust Belt. Investors defer or reduce capital gains if funds are invested in projects in deprived areas of the US, resulting in the profits on those projects becoming tax free after a decade. Why not pilot it in Oldham, and then let the Treasury run its slide rule over the numbers.

The government announced the twelve renewable energy projects that had won ‘contracts for difference’ auctions, which guarantee energy prices for suppliers. The new projects will power more than 7m homes for as low as a startling £39.65 per megawatt hour. This is 30% below the £57.50 auction price achieved in 2017 and is below the £50 per megawatt hour that wholesale electricity prices have hovered around this year. These figures suggest no taxpayer subsidy is needed and evidences that offshore wind in particular, is a UK success story that is benefiting deprived eastern coastal towns and cities.

On nuclear, EDF says the cost to complete the Hinkley Point C plant is now estimated to be between £21.5bn and £22.5bn – an increase of £1.9bn to £2.9bn compared to the previous estimate. These cost overruns will not hit UK consumers because the price agreed for the electricity it will produce was £92.50 per megawatt hour (when the wholesale market price was around £40) reflecting EDF’s commitment to absorb any cost increases. Not all of the additional spend will be local, but some will, and few Somerset businesses will complain.

Construction work continues while the HS2 review is ongoing but if HS2 does goes ahead, the first phase between London and Birmingham will be delayed by up to five years, Transport Secretary, Grant Shapps, has confirmed. That section of the line was due to open at the end of 2026, but it could now be between 2028 and 2031 before the first trains run on the route. HS2’s total cost has risen from £62bn to between £81bn and £88bn.

Channel 4 News has seen documents showing that the Treasury and Department for Transport have been asked for advice on the possible costs and risks of a 20 mile bridge from Scotland to Northern Ireland. Better infrastructure in Galloway suggests a bridge from Portpatrick to Larne is the preferable route at a cost of c£15-£20bn. Where or who will foot the bill for this project is unclear, although the £80bn HS2 project is under review. Every Prime Minister wants a legacy.

The Stats
The ONS said the dominant services sector helped the economy grew 0.3% in July, which meant growth was flat over the quarter, an improvement on the 0.2% contraction seen in April-to-June. On manufacturing, the figures suggest that firms are beginning to restart stockpiling in anticipation of the possibility of no-deal Brexit in October.

The labour figures remained good. The ONS said the UK employment rate was the joint-highest on record since comparable records began in 1971 at 76.1% , and higher than a year earlier (75.5%). The largest increase in employees by industry was in the professional, scientific and technical industry, up 3.3%. The largest decrease by industry was in the information and communication industry, down 1.6%. The UK unemployment rate between May to July was estimated at 3.8%; lower than a year earlier (4.0%) and unchanged on the quarter. If bonuses are included, the ONS estimated that the annual growth in average weekly earnings for employees increased to 4% in the three months to July, from 3.8% in the three months to June, the biggest rise since the mid-2008. In real terms, annual growth in total pay was 2.1%. Another ONS survey into flexible working revealed 42% of public sector workers worked flexibly compared with 21% of private sector workers.

Inflation fell to 1.7% from 2.1% in August driven by a 5% decrease in games, toys and hobbies, especially computer games, plus clothing prices increased by 1.8% compared with a 3.1% rise a year ago. Culture (theatre tickets etc) saw a slower rise of 0.2% in July and August compared with 2.9% a year ago. The cost of bread went up though, along with breakfast cereal and meat.

The annual growth in house prices slowed to its lowest rate since September 2012, with four of the nine English regions seeing prices falling over the year. Average house prices increased by 0.7% in the year to July 2019, down from 1.4% in June 2019, seven years ago the rate was 0.4%.

Whilst the Bank of England held interest rates at 0.75%, on the Continent, the European Central Bank unveiled fresh stimulus measures. The deposit facility rate, paid by banks on their reserves at the ECB, was already negative, but was cut again from -0.4% to -0.5%. The ECB also said it was re-starting quantitative easing and will buy €20bn of debt a month from 1 November.

GDP growth in the euro area and the EU28 rose by 0.2% during the second quarter of 2019 compared with the previous quarter, according to Eurostat. In the first quarter of 2019, GDP had grown by 0.4% in the euro area and by 0.5% in the EU28. Over the year key European economies have been sluggish; Germany has grown by 0.4% and France by 1.4% with Italy contracting by 0.1%.

The euro area (EA19) unemployment rate was 7.4% in August 2019, down from 7.5% in July 2019 and from 8.0% in August 2018. This is the lowest rate recorded in the euro area since May 2008. The EU28 unemployment rate was 6.2% in August 2019, down from 6.3% in July 2019 and from 6.7% in August 2018.

The euro area inflation rate was 1.0% in August 2019, the same as in July. A year earlier, the rate was 2.1%. European Union annual inflation was 1.4% in August 2019; also the same as in to July, a year earlier the rate was 2.2%.

London the best performing ‘regional’ economy in terms of economic growth, HS2 in doubt and the Scottish Government time-shifts back to Callaghan era interventions

Reading Time: 3 minutesThe best regional growth in the UK was achieved by London in the year to June 2019 according to estimates from ESCoE. At 2.3%, London was the best performing ‘region’ with Northern Ireland at 1%, ranked last. Yorkshire & The Humber (2.1%) and the North West (1.6%) performed well relative to other parts of the UK. With the exception of the regions above and the South West, growth in other regional economies was below the national average which suggests these economies have stalled or shrunk.

On unemployment, the South West had the lowest rate at 2.7%; the North East had the highest at 5.3% with the UK rate at 3.9%. UK average earnings grew by 3.7% or by 1.8% after inflation with London again ranked first. Average earnings in London were £831; the North East had the lowest at £537. UK property prices grew by 0.7% to £230,292 during June, which left the annual growth rate unchanged at 0.9%. This time London was ranked last, with prices dropping by 1.9%. This compared with price growth in Northern Ireland at 3.5% and Wales at 4.4%.

On regional policy, it has been a series of mixed messages from the Government on transport. In July, Boris Johnson used his first major policy speech to promise a high speed rail link between Manchester and Leeds. But a month later, the government has launched a review of HS2, with a decision promised by the end of the year. With £7.4bn already spent, newish Transport Secretary, Grant Shapps, has refused to rule out scrapping it entirely.

On interventions, letting British Steel enter compulsory liquidation in May looks the right decision, after Atear Holdings, which owns nearly 50% of Erdemir, Turkey’s biggest steel producer, said it was in advanced talks with the Official Receiver. Likewise, ignoring calls to intervene at Harland and Wolff looks to have paid off, after administrators confirmed they have received a number of non-binding offers to buy the business as a going concern.

The same is not the case with other shipyards. The Scottish Government’s fondness for 1970s style interventions has continued. The Ferguson shipyard in Port Glasgow has been nationalised and Ministers will now operate the yard under a management agreement with administrators Deloitte. The status of two previous taxpayer loans to Ferguson Marine, totalling £45m, is unclear, as are the EU state aid implications of a Government building ships with public funds. An earlier Scottish Government intervention into the renewable energy sector has also continued to unravel. The Scottish government loaned engineering firm, BiFab £19m, then converted this into shares as losses mounted. Audit Scotland has ruled this equity stake is now only worth £6m. Since 2013 Scottish Ministers have also been in the airports business. Taxpayers are unlikely to recover any of the £38.4m they have shelled out to keep Prestwick airport afloat.

The economy contracted over a quarter for the first time in seven years. With the UK economy contracting by 0.2%, UK GDP increased by 1.2% when compared with the same quarter a year ago, down from 1.8%. The ONS said the UK services sector made the only positive contribution to growth in the second quarter and even that only grew by 0.1%. After Brexit stockpiling earlier in the year, the production sector contracted by 1.4%, putting the greatest downward pressure on GDP.

EU growth was 0.2% in both the euro area and the wider EU during the second quarter of 2019, according to Eurostat. Compared with the same quarter of the previous year, GDP rose by 1.1% in the euro area and by 1.3% in the EU28. Like the UK, the German and Swedish economies contracted. During the same period, GDP in the United States increased by 0.5% compared with the previous quarter, and by 2.3% compared with the same quarter of the previous year.

In July, inflation rose to 2.1%, with computer games, consoles and hotel prices rising more than they did last year. Eurozone inflation slowed to 1% in July, according to the Eurostat. Also according to the ONS, ‘the productivity puzzle’ continued, with productivity decreasing by 0.6% for the quarter between April to June compared with the same period last year. The UK public purse showed a surplus of £1.3bn in July, compared to the same month last year. Public sector finances usually show a surplus in July because of income tax payments from individuals. Although tax receipts were higher compared to last year, government spending also rose – up 4.2% or £2.6bn.

Helped by the weak pound, UK tech companies secured a record £5.5bn in foreign investment in the first seven months of this year. This was more than the amount invested per capita in the US tech sector in the same period according to the government. US and Asian firms spent £3.02bn, more than the whole of 2018, however overall, foreign direct investment in the UK hit a six-year low in June. But we are all a little wealthier than we believed, the ONS has updated how it measures GDP, and says the economy in 2016 was £26bn bigger than thought.

Whitehall mandarins admit that they do not assess what impact £12bn of taxpayers’ money has on local economic growth

Reading Time: 3 minutesIn its review this month of the 38 Local Enterprise Partnerships (LEPs) – the private sector-led partnerships between businesses and local public sector bodies that support local economic growth – the powerful Public Accounts Committee (‘PAC’ or the ‘Committee’) of the House of Commons found that from 2015-16 to date; £9.1bn of taxpayers’ money has been awarded to LEPs through three tranches of Growth Deals with a further £3bn allocated via other means. The PAC found that the Ministry of Housing, Communities and Local Government (‘the Ministry’ or ‘the Department’) does not to evaluate the Local Growth Fund which means it has no understanding what impact spending through LEPs has on local economic growth.

The Committee observed that the Department chose not to set quantifiable objectives for Growth Deals and that its assertion that every £1 of local growth funding could generate £4.81 in benefits was an unsubstantiated estimate. It found that the Department does receive quarterly performance data from LEPs but fails to use this to measure what value for money LEPs have delivered. Also mandarins were not able to give MPs examples of the private sector match funding and investment generated through LEPs. Civil servants did commit to include methods of evaluation in the design of the UK Shared Prosperity Fund.

The PAC found the Department has improved the assurance framework for LEPs but observed that there was a long way to go before all LEPs were held to account and their work scrutinised effectively. The Committee also recommended that the Department should set out a clear timetable showing how it will meet the April 2020 deadline to remove the four overlapping LEP geographical boundaries and what action it will take if local authorities fail to agree. Additionally the PAC recommended that within the next 12 months, the Ministry should work with LEPs to agree a broader set of diversity targets for LEP boards.

MPs found that LEPs underspent £1.1bn in the three years to the end of 2017/18 which called into question their capacity to deliver complex projects. The Ministry thought capacity issues were unlikely to be the only reason why LEPs were under spending, but the PAC was not clear on how it had reached this conclusion given that civil servants had not completed any systematic analysis in this area. Mandarins told MPs that the Department had now commissioned a research project which will look at the capacity issue.

The Committee also considered the risk that funding allocated on the basis of local industrial strategies may not reach areas with the greatest need. The Department has tied the future of LEPs to the development of local industrial strategies, but the EU funding that is being replaced has largely been focused on areas that are deprived, as opposed to areas which already have relatively high productivity and the potential to build on existing growth. The Department acknowledged the importance of striking a balance between support to local economies that are further behind and support to areas that can build on existing high productivity. MPs were not convinced how the Department will achieve this in practice. Mandarins were unable to specify how the local industrial strategies will be used to determine the funding that local areas receive.

On the economy, a return to work in car factories that shut down in preparation for a no-deal Brexit drove a return to growth in the economy in May of 0.3%. GDP grew moderately with IT, communications and retail showing strength. Both the services and production sectors grew by 0.3% contributing positively to headline GDP growth. However, construction growth was flat over the same period with zero contribution According to the ONS, the UK’s overall trade deficit decreased by £4.6bn to £12.6bn for the three months to May 2019, due mainly to the trade in goods deficit narrowing by £4.6bn to £39.7bn. Falling imports of transport equipment, machinery and chemicals, as well as increased exports of fuels all helped.

There was a surprise 1% rise in retail sales during June, mainly due to growth in non-food stores with increased sales in second-hand goods, including charity shops and antiques. Retail sales growth has slowed in the latest three months though as food stores saw falling sales for the first time this year and department stores continued their steady decline.

Inflation remained unchanged at 2% in June. Key drivers were petrol and diesel prices, which fell this year but rose a year ago, and clothes prices, which dropped by less than this time last year. At 2%, inflation remains below average UK wage growth which rose to 3.6% in May, the highest rate since 2008.

Government borrowing was higher than expected in June. The ONS said that in June 2019, the public sector spent more money than it received in taxes and other income and had to borrow £7.2bn, £3.8bn more than in June 2018. Although government receipts in June 2019 increased by £800m, government expenditure also increased by £4.3bn. The ONS said there was a notable increase in expenditure on goods and services of £1.2bn, while the UK’s contribution to the European Union increased by £400m compared with that in June 2018. The government’s debt repayments rose by £2.1bn. Public borrowing in 2018/19 was at a 17 year low of £23.5bn; while at the end of March 2019, debt stood at a record high of £1,801.1bn.

London and the South East win half of UK inward investment, London secures 24% of taxpayer funded start up loans and the economic picture still benign

Reading Time: 3 minutesThere was a drop in inward investment into the UK by foreign firms last year with new investment down 12% and expansion of existing investment down 22%. Despite this, the UK remained the number one destination in Europe in 2018, ahead of Germany and France, securing its third-highest number of projects in 20 years. Projects in Germany also fell by 13% largely due to a slump in business services investment, but in France they increased by 1%, moving it into second place in Europe above Germany, suggesting some of President Macron’s reforms are working.

Of the 1730 projects which took place in a single location, 627 or 36% were in London. If the South East is included, then nearly half (48%) of projects were south of the Watford Gap. Across the home nations, 1518 projects were in England, with Scotland, Wales and Northern Ireland winning 126, 51 and 35 each. Outside London and the South East, the West Midlands performed best, securing 155 projects, with the North East the worst performing English region with 59 projects. In terms of sectors, software and computer services were top with 366 projects, with extraction industries and renewable energy joint bottom with 41 projects. The Americans were the biggest inward investors with 440 projects followed by the Germans on 109 and the Indians on 106.

The taxpayer funded British Business Bank has loaned £500m to start ups since opening its programme in 2012. With UK banks still shell shocked after the financial crisis, the Bank was tasked with supporting business investment directly with its own funds and also giving confidence to other lenders via lending guarantees. Data from Start Up Loans, which is part of the bank, showed London has gained a disproportionate share of the funds, with 14,000 of nearly 70,000 start-up firms loaned £118m. The North West region fared best outside of London, receiving 7,841 loans worth £60m followed by the South East with 5,680 loans worth £48m. In the devolved nations, £29m was lent in Scotland, £26m in Wales and £7m in Northern Ireland. Of the English regions, at £25.9m, the smallest amount loaned was in the East Midlands. For more established businesses in the East Midlands, the £250m Midlands Engine Investment Fund – which is also operated by the British Business Bank – can provide debt or equity finance. The Fund is drawn from UK taxpayers, EU finds and the European Investment Bank and has so far deployed £50m in the region.

On the economy, figures from the ONS confirmed UK annual growth at 1.8% in the first quarter of the year with the economy growing by 0.5% from the previous quarter. Later in the month though, the April figures showed a fall in car production and an easing of stockpiling by manufacturers caused the economy shrink, contracting 0.4% from the month before, which resulted in growth for the three months to April at 0.3%. Factory shutdowns designed to cope with disruption from a March Brexit was the main reason, for example BMW’s Mini factory in Oxford brought forward its summer shutdown to April. The economy had grown impressively in the run-up to the proposed March date for the UK leaving the European Union, as manufacturers stockpiled parts, raw materials and goods but after the Brexit deadline was extended to October the reverse happened.

Wages grew by 3.4% in the three months to April with the biggest increases in the construction and financial services industries. After taking inflation into account, wage growth was 1.4%. The unemployment rate remained at 3.8%, the lowest since October to December 1974. The employment rate for women was 72%, the highest on record, largely because of changes to the state pension age which has meant fewer women retiring between the ages of 60 and 65.

The government borrowed £5.1bn in May, £1bn more than the previous May. Total borrowing in the first two months of the financial year was £11.9bn, 18% more than last year. The ONS expects the government to borrow £24bn this financial year – £500m more than it had previously estimated.

Inflation was 2.0% in May, down from 2.1% in April. Falling fares for transport services, and falling car prices offset rising prices of furniture, furnishings and toys.

Eurozone GDP rose 0.4% in the first quarter or 0.5% when all 28 EU countries are included according to Eurostat. This compared to the previous quarter when GDP climbed by 0.2% in the eurozone and 0.3% across the wider EU area. Croatia recorded the highest growth, with GDP climbing 1.8% compared to the previous quarter which meant 3.9% annually. German and French annual growth is 0.7% and 1.2%.

The eurozone unemployment rate was 7.6% in April 2019, down from 7.7% in March 2019 and from 8.4% in April 2018. This is the lowest rate recorded in the euro area since August 2008. The wider EU unemployment rate was 6.4% in April 2019, stable compared with March 2019 and down from 7.0% in April 2018.

Further afield, the unemployment rate in the US increased from 3.6% to 3.7% and inflation dropped by 0.2% to 1.6%. The US economy grew annually by 3.2%.