Yorkshire And The Humber To See Service-based Growth
Yorkshire and the Humber should benefit from strong investment growth this year owing to a sizeable industrial sector, according to the latest analysis in KPMG’s UK Economic Outlook. The region is expected to see 5.8% growth in 2021 followed by 5.2% in 2022, reaching pre-Covid levels of output by Q1 2022, in line with the UK forecast.
While tourism in Yorkshire could see a boost from the increase in staycation holidays this summer, the post-pandemic economy is expected to be more reliant on the growing financial, professional and business services in the region.
Yorkshire, along with all UK regions and nations, saw strong increases in house prices despite the severe economic shock of the pandemic. The strongest rises took place after the introduction of the “stamp duty holiday” in the 2020 Summer Statement. However, analysis suggests the pace of house price rises is unlikely to be sustained in the medium term, due to the reversal of the cut to stamp duty in the next six months and changes in lifestyle preferences.
The outlook for all regions and nations of the UK is one of a recovery in both 2021 and 2022, although at varying speed, with strongest growth expected in the West Midlands, London and the East of England. This reflects the uneven impact of the pandemic across sectors and regions, with a relatively quick bounce-back in manufacturing leading much of the early gains in output. However, as the economy re-opens and restrictions lift, the shift towards a services-based economy will resume across most of the UK.
Euan West, office senior partner for KPMG in Leeds, said:
“The expected recovery across Yorkshire and the Humber and overall investment growth in the region is what we have been hoping for since the start of the pandemic. We have great businesses across Yorkshire who are committed to the region and we hope to see them grow as the Government pursues its levelling up agenda, attracting inward investment.”
A combination of restrictions lifting, pent-up consumer demand, accumulated excess savings and a range of government incentives are expected to spark a strong lift-off for the UK economy this summer. This will see GDP grow by 6.6% (up from 4.6% forecast in March) in 2021 and 5.4% in 2022*, allowing the economy to reach its pre-Covid level by the first quarter of next year.
Meanwhile, rising cost pressures and the reversal of temporary tax cuts will add to inflation this year, but the analysis shows it should moderate towards the second half of next year, and average 1.7% in 2021 and 2.1% in 2022. With spare capacity still in place, KPMG expect the Bank of England to keep interest rates on hold in the short-term in order to allow the economy to fully recover and mitigate the downside risks to the outlook.
From the onset of the pandemic, businesses have been partially shielded from insolvency both by the direct financial support on offer as well as by temporary measures suspending and relaxing insolvency procedures. So, once the temporary regime is over and businesses are forced to confront a new normal, there could be a significant uptick in the number of company insolvencies, despite interest rates remaining low in the short term. This could mean a peak of about 8,000 insolvencies around the turn of the year before numbers fall back again to around 4,000 per quarter.
The outlook beyond the short-term paints a less strong picture, with the end of the super deduction allowance and the rise in corporate tax causing a sharp fall in business investment from 2023, while consumers readjust their spending patterns.
Yael Selfin, Chief Economist at KPMG UK, commented on the report
: “As restrictions are lifted and consumers flock back, we expect a robust recovery ahead. Some sectors, such as manufacturing and construction, have already recovered most of the ground lost last year, while for others such as hospitality, the big times are now.
“But the possible emergence of new variants of the virus that are less responsive to the current vaccines is still a downside risk, albeit less severe than previously, as the economy has adapted to operating under social distancing restrictions. An expected rise in the level of insolvencies, as government support programmes are withdrawn, could also impact recovery.”