The State of Britain

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

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The 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.