London reclaims top spot in RBS Regional Tracker Q3 2014

It was a steady quarter for the region in Q3. Output growth of 2.9%y/y places it in the
middle of the pack for the last 12 months, propelled by good performances in wholesale and retail trade and rubber manufacturing. Revisions to the data show that the North West surpassed its pre-crisis level of output in 2013. Recent good performance has been reflected in a fall in its unemployment rate from 8.3% last year to 6.3% this year and average earnings growth above the UK average.

Within the region, East Merseyside and Cheshire East have been the star performers and were both in the top 10 fastest growing local areas in the UK. Both regions enjoy a competitive advantage over many of their peers. Over the past year, East Merseyside has benefitted from growth in its manufacturing and distribution industries, while Cheshire East’s success has been led by business services.

It was steady growth for the region in Q3. Output growth of 0.7%q/q and 2.9%y/y put Yorkshire & the Humber in the middle of the UK pack. Food and rubber manufacturing and transport and storage performed better than the UK average. But growth was mainly driven by wholesale & retail and administrative and support services. As a result, unemployment has fallen by 1.7 percentage points in the last year.

Wakefield has seen the region’s largest fall in the rate of joblessness, which has in part been a result of the local area being the fastest growing. Local area success has been driven by the distribution, transport, accommodation and food sectors.

It was an above average economic performance for the East of England, with the region’s economy expanding by an estimated 3.1%y/y. The strongest performing sectors were administrative & support services and wholesale and retail trade, which not only drove the region’s growth, but also performed better than their peers in many other regions. But more will be needed to get average earnings to start growing.

Cambridgeshire was the fastest growing local area in the region and the sixth fastest growing in the whole of the UK. The region has built on its strengths as one of the largest local area economies in the UK and one with one of its highest levels of output per capita. And over the past year its good performance was driven by business services, a broad sector that includes the science & technology research firms that the area is famous for.

The South West economy continues to hum. The economy grew 0.6% between Q2 and Q3, slower than the 0.8% pace seen in the first half of the year but a solid performance nonetheless. Encouragingly for the South West, there was a strong contribution from the professional, scientific and technical activities sector. But as in previous quarters growth was broad-based with construction and the wholesale & retail sectors chipping in. The real estate sector also performed well. House prices have risen by 7% in the past year according to Land Registry data.

The South West’s solid growth is reflected in its labour market. The region has created 60,000 jobs in the past year and enjoys the lowest unemployment rate in the UK at just 4.6%. Bath and North East Somerset, North Somerset and South Gloucestershire was the fastest-growing local area and among the fastest in the UK. This success is partly driven by the concentration of manufacturers in the area.

The North East economy has leapt up the regional rankings between Q2 and Q3. The economy grew 0.6% q/q in Q3, bang in line with the wider UK figure. Compared to last year growth is a solid 3%. Wholesale & retail, transport & storage and the health sectors all made good contributions to growth. Unemployment remains a big challenge but there is progress to report. The unemployment rate has fallen by almost a percentage point in the past year on the back of 27,000 jobs being created.

At the local level Tyneside is performing very well with its strength in manufacturing and its position as the regional hub driving growth. Darlington is also performing well on the back of solid growth in the information & communication sector.

The South East economy grew and estimated 0.7% between Q2 and Q3, in line with the UK figure of 0.7%. Compared to last year the economy is 3.1% larger, in line with the UK figure. The region’s strength in high value-add services is propelling growth with the ICT and the professional & scientific sectors making significant contributions. Unsurprisingly the labour market is performing well. The unemployment rate is just 4.6%, the lowest of all the UK regions with 64,000 jobs created in the past year.

Many of the region’s local areas are performing very well. Milton Keynes is one of the best performing local areas in the UK but Buckinghamshire, Berkshire and Oxfordshire are also performing well. All four of these local areas have strongly performing business service sectors while Berkshire’s information & communication sector is helping to drive growth.

London reclaimed its number one slot in Q3. Growing at an estimated 3.7%y/y, the capital left its rivals trailing in its wake. The professional, scientific and technical sector was the foundation for the city’s success over the past year. But there were also good showings from the administrative and support and ICT sectors. The one stain on London’s record is that despite all of this growth and the accompanying fall in unemployment, average earnings are still falling.

Our estimates suggest that Inner London East was England’s fastest growing local area, with growth led by the highly competitive business services sector. But London is a diverse place and not all areas grew nearly as strongly. Outer London South grew at 2%y/y, making it only the 115th fastest growing local area in the UK. This came despite impressive growth in business services.

Last quarter’s star performer had to settle for second place. Estimated growth of 3.5%y/y put it just 2 percentage points behind London. Wholesale and Retail trade and Administrative and Support services formed the backbone of the region’s economic surge. But like the capital, the region’s lack of earnings growth presents a puzzle, one that will hopefully be resolved soon.

East Derbyshire was the strongest performing local economy, growing by an estimated 4.1%y/y. The region’s unemployment rate has now fallen to just 4.3%, well below the national average. North Northamptonshire came a narrow second, boosted by the distribution, transport, accommodation and food sectors’ collective good performance.

The West Midlands grew a respectable 0.6%q/q in Q3, although this was slower than its peer group in Q3. Part of the reason is down to the region’s lower reliance on professional, scientific and technical services, a sector which grew especially well in Q3. But it is not all gloom. The region’s unemployment rate has fallen further than almost any other over the past 12 months.

Worcestershire was the standout local area, growing an estimated 3.7%y/y, well above the regional average of 2.6%y/y. But with Birmingham putting in a disappointing 2%y/y performance, it was too much for faster growing areas such as Warwickshire and Herefordshire to make up the difference.

A new region to our Growth Tracker, Wales put in a solid, if slightly below average performance, growing by an estimated 2.7%y/y. Despite this, the country has seen a rapid fall in unemployment and it is also one of the few places where average earnings are growing faster than inflation.

The Isle of Anglesey and Bridgend were at the head of the local area pack, growing by an estimated 3.5%y/y and 3.4%y/y respectively. Despite this good news, unemployment remains stubbornly high in Bridgend at 8.1%, so the area will need to continue its good growth in order to start to generate more jobs.

It was a good performance for Scotland in Q2. Growth of 0.9%q/q put it among the
fastest growing UK regions. Inverness and Aberdeen topped the local area charts. The
former has benefitted from a surge in competitiveness over the past decade, while the
basis for the latter's success it well know - its dynamic oil industry.

Inverness was one of the fastest growing regions in the UK in Q2. Edinburgh also did
well, growing an estimated 3.7%y/y, while Glasgow City's economy expanded at a
slower rate of 2.4%y/y. With a falling unemployment rate and the fastest average
earnings growth in the UK, things look bright up north.
The Scottish estimates are based on the data for Q2 that are provided by the Scottish
Government.