A view from the North – skills are the priority

An economist on the road…

As much of the world was preparing for the glamour of Davos, I spent last week travelling around the north of England, meeting with clients, trade bodies and policy-makers in Leeds, Manchester and Newcastle. I was keen to share our perspective on the outlook for 2018 and beyond and to identify initiatives that could improve economic performance and accelerate geographic rebalancing.

… in search of geographic balance …

The recent EY Regional Forecast demonstrated that there has been no reduction in imbalances in England and Wales over the last 3 years. As in our previous two reports, London and the South East remained the fastest-growing regions of the UK economy between 2014 and 2017 and we expect that London and the South East will continue to outperform all other UK regions through to 2020. Our outlook for the growth of cities in England paints a similar picture: cities in Southern England are out-performing the rest. 

We forecast that differences in the rate of economic growth between northern and southern regions and cities will fall in the period up to 2020. However, as this is primarily driven by slowing growth in the south rather than an acceleration of growth in the north, it is not really to be celebrated.

… was surprised by the positivity ...

Despite the challenging backdrop, the mood of the businesses I met was very positive. In part this reflects the structure of the northern economy. Manufacturing here is more important relative to the UK as a whole and the sector is now starting to benefit from the competitive pound and a growing global economy. I heard anecdotes of some reshoring of activity back to the UK reflecting the higher cost of imports due to the depreciation of sterling over the last couple of years.

But it is not just manufacturing. I met businesses across a range of sectors all confident of the potential to grow strongly. In part this reflects the “knock on” effect of stronger manufacturing, we often forget the multiplier effect of the well-paid jobs manufacturing supports, but also the resilience of the northern economy. My sense is that years of relative neglect by policy-makers in the south have helped fashion a “can do attitude”.

… cheered by the mood on Brexit …

Brexit came up in our sessions although less than has been the case in similar discussions elsewhere in the country. The current mood is one of wait and see with the view expressed that there is not enough clarity to make significant decisions at this time. I did pick up on concerns over future trading arrangements, especially from manufacturers and there is no doubt that the most important Brexit issue for the northern economy is the status of the UK in respect of the Customs Union. Protecting the integrated, Europe wide supply chains from the UK through to Eastern Europe and from Scandinavia to the Mediterranean is the crucial issue for manufacturers.

… and left clear that is time to seize the opportunity.

Transport for North set out their strategy while I was in the Northern Powerhouse. Coming on the back of the Independent Economic Review, my sense is that the North is working hard to improve its performance. There are clear sector priorities emerging, groupings such as an energy cluster forming and a great deal of enthusiasm. It does feel that the North’s industrial strategy is ahead of the national one.

But it is not all good news, there are challenges. In all of my sessions, concerns over the availability of skilled labour were raised. The issue was widespread with engineering, construction, logistics and the digital sectors all identified. There was a great deal of frustration about the failure of policy to have any real impact in secondary, tertiary and higher education. Gaps were identified in both technical and soft skills, in fact the latter were probably the more significant issue as businesses accept the need to do more in work training and to begin to address the need to reskill workers currently in position in the future.

The Northern Powerhouse has positive momentum and appears to be working hard to take advantage of the new powers devolution has bestowed. The lack of control over the skills agenda sits awkwardly with the approach in other areas especially as there appears to be real issues in this area. Much of the labour market is local in nature and hence policy should be developed, at least in part, closer to the places it impacts. It is time to drive the skills agenda locally.

@MarkGregoryEY

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