The State of Britain

Economic growth in the North West compares favourably with most regional economies and HS2 under review

Reading Time: 4 minutes

Growth in the North West was 1.6% in the year to June 2019 according to estimates from ESCoE. The robust uplift from the previous quarter’s growth of 1.0% made the North West the most improved region in the UK and ranked it fourth overall (out of twelve UK ‘regions’). At 2.3%, London had the best performance with Northern Ireland at 1% the worst. The national growth rate for the same period was 1.5%. With the UK economy contracting by 0.2% in the quarter, growth in the North West compares favourably with most regional economies which have shrunk.

Unemployment in the North West increased by 21,000 to 158,000 between April and June, an increase of 0.6% to 4.3%. This was the highest increase in unemployment in the country. 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%. The South West also had the highest employment rate at 80.5% which compared with 74.7% in the North West. UK employment was estimated at 76.1%, the joint highest since comparative records began in 1971.

In June, average earnings in the North West were unchanged at £575 per week. London had the highest average earnings of £831. In the UK average earnings grew by 3.7% or by 1.8% after inflation.

North West average property prices increased during the month, the small 0.2% uplift to £164,116 took the annual growth rate to 2.4%. In comparison UK prices grew by 0.7% to £230,292 during June which left the annual growth rate unchanged at 0.9%.

It was a month of mixed messages from the Government on regional transport. In July, Boris Johnson used his first major policy speech at Manchester’s Science and Industry Museum to promise a high speed rail link between the city and Leeds. High speed rail is expected to arrive in Manchester and the rest of northern England by 2033. But now the government has launched a review of the high-speed rail link (HS2) with a decision promised by the end of the year. With £7.4bn already spent, Transport Secretary, Grant Shapps, has refused to rule out scrapping it entirely. Phase 1 of the development between London and Birmingham is due to open at the end of 2026. In July, the current chairman of the project warned that the total cost could rise by £30bn to £86bn, putting the projects value for money into question. There was also disagreement amongst northern leaders with Manchester Mayor, Andy Burnham, pushing an underground option at Manchester Piccadilly (which may cost £6bn) contrary to HS2’s preferred surface station (£570m). With the HS2 project in jeopardy, Northern Powerhouse Rail’s £39bn High Speed 3 (HS3) or Crossrail for the North network in the North of England looks in doubt.

There may be less shale gas in the Bowland geological formation that runs under Lancashire, Yorkshire, parts of the Midlands and into North Wales, than previously thought. The University of Nottingham and the British Geological Survey (BGS) have developed a new method for analysing the gas content of shale, which queries a 1,300 trillion feet of gas estimate in a 2013, suggesting instead that there may only be 200 trillion feet; 5-7 years’ of gas at the current rate of consumption instead of 50 years. Experts at the BGS were cautious in their interpretation of the study, however, even though several of their own scientists were involved in the paper. Cuadrilla, also rejected the new paper and other academics suggested the only way to provide accurate estimates of how much gas is likely to be produced is to drill, hydraulically fracture and test many wells. During the month, fracking was stopped several times by The Oil and Gas Authority (OGA) after a 2.9 magnitude earthquake was reported at Cuadrilla’s Lancashire site. Under current rules, drilling must be stopped for 18 hours if it triggers earth tremors above a 0.5 magnitude. This compares with America where a 4.0 Richter scale limit is allowed.

FirstGroup and Italian firm Trenitalia, are to take over the running of the West Coast Mainline (‘WCM’) train route, connecting London Euston to Glasgow Central, from December, replacing Virgin Trains, which was barred from bidding. The new contract will operate in two phases. The first will run from 8 December to March 2026, when First Trenitalia will operate the existing InterCity West Coast services. The second phase will run from March 2026 to March 2031, when it will operate the HS2 high-speed rail service. Given the HS2 project has been put under review, this may have to be changed even before First Trenitalia starts operating the trains. The firm said its £117m investment would mean 56 Pendolino trains refurbished, more reliable free Wi-Fi, better catering, and more than 260 extra services each week by 2022.

FirstGroup also operates the South Western Railway and TransPennine Express. TransPennine Express is Virgin’s only competitor on most of the northern part of the West Coast mainline. Virgin’s WCM partner, Stagecoach – which refused to take on pensions risk – has won the right to a judicial review of the decision to block it from bidding. Unlike other franchisees Virgin is consistently rated highly by North West travellers. In the latest National Rail Passenger Survey, of the 25 operators in the country, it was ranked second.

A report by an All-Party Parliamentary Group (‘APPG’) of MPs which looks at Post-Brexit Funding for the nations and regions has found that the UK would receive additional EU funding in the 2021-27 spending round. Three additional sub-regions, Lincolnshire, South Yorkshire and Tees Valley & Durham are likely to slip below the threshold of 75% EU average GDP per head that would qualify them for ‘less developed region’ status, but no part of the North West has yet fallen below this level.

Additionally, the EU has proposed that ‘transition region’ status should be extended to cover all regions with a GDP per head between 75-100 per cent of the EU average, compared to 75-90 per cent at present. Seven additional sub-regions are likely to slip below the threshold of 100% EU average GDP per head qualifying them for ‘transition region’ status. Greater Manchester would fall into this category, as well as East Anglia, East Wales, Leicestershire, Rutland & Northamptonshire, Outer London South, North Yorkshire and South Western Scotland. It is not clear how much extra funding these areas would have received from the EU, or but €50 per head over the next EU spending round would equate to £560m.

The UK government has promised to replace EU funding to the regions with a new UK Shared Prosperity Fund. If the new sub regions are added, the APPG calculates this amounts to c£1.8bn pa, on top of the c£2.2bn pa already committed as part of Local Growth Fund. Integrating the Local Growth Fund into the UK Shared Prosperity Fund could be problematic. The Local Growth Fund allocates funding to LEPs via competitive bidding whereas the allocation of EU funds uses a fixed formula. How the Shared Prosperity Fund will be allocated and mesh with other pots like the City Deals is yet to be determined.