Thames Valley & South Coast: Reading set to be one of the UK’s fastest-expanding cities, says EY

Reading is set to be one of the fastest-expanding cities in the UK over the next three years, with forecast Gross Value Added (GVA) per year of 3.1%, marginally out-performing London’s predicted economic growth of 3.0%, reveals a new EY forecast.

According to the new EY UK region and city economic forecast, the Thames Valley and South Coast economies are predicted to grow by 2.8% and 2.2% respectively, in terms of GVA between 2015 and 2018. This performance means the Thames Valley, and in particular Reading, is outperforming the UK growth average (2.3%). The South Coast is set to grow at a steady rate of 2.2% and the city of Southampton 2.1%.

The Thames Valley is also expected to be one of the fastest-growing regions for employment, with 1.2% growth between 2015 and 2018 – the same rate as Bristol and Manchester. Luton is set to be the fastest-growing city for employment, with 1.6% growth, and Reading ranks in second place, with 1.4% growth during this period.

Richard Baker, EY’s managing partner across the Thames Valley and South Coast, commented: “Overall, this is great news for the Thames Valley and South Coast region, with an average economic growth rate of 2.5% and average employment growth of 1.0%, making it one of the UK’s fastest growing areas outside of London.

“Reading and the Thames Valley are expected to outperform the rest of the UK, while Southampton and the South Coast fall slightly behind, having suffered from the loss of automotive manufacturing and pressure on defence spending, with the latter affecting both Portsmouth Dockyard and many contractors within the area.

“As well as the exchange rate, which will have hurt other regions with large manufacturing sectors, the pattern of growth we’re seeing across the Thames Valley and South Coast with its service sector focus has benefited from the strength of consumer demand. It will also have benefited service sectors more than manufacturers because of their lower exposure to imports.”

With three-year GVA growth of 2.5% – equal to that of Cambridge – Manchester is the best of the rest and the standout Northern city, illustrating clearly the potential of the Northern Powerhouse.

Mark Gregory, EY’s chief economist, UK & Ireland, commented: “The London effect is certainly being felt in its surrounding cities and should help Reading, Luton and Cambridge to perform strongly to 2018 as investment continues. It’s also worth noting that each of these cities has benefited from industry specialisation – Reading with information and communications, Luton with manufacturing and logistics and Cambridge with professional services and education. This approach is one that cities up and down the UK must learn from when shaping their economic development strategies. Successful cities around the world have differentiated and integrated propositions for investors.”

South of England outpacing rest of the UK

Economic growth is also thriving for the rest of the southern regions, with London and the south of England continuing to outpace the rest of the UK over the next three years. London is forecast to record an average GVA of 3.0% per year over the period, with the East of England (2.5%), South West (2.5%) and South East (2.3%) likely to outpace the UK three-year average of 2.3%, albeit to a lesser extent than the capital.

Gregory said: “It’s more of the same for dominant London over the next three years thanks to the City’s outstanding professional services, technology and communications sectors, the return to growth in financial services, and the boost from inward migration.

“In contrast, we predict growth in the UK will slow slightly while remaining stable, as inflation impacts consumer confidence, interest rates begin to rise and public expenditure reform bites. Compared to the rest of the country, these factors will be felt less in the southern regions, which should be buoyed by good corporate investment and growth, alongside healthy property markets. Strong migration growth in the southern regions compared to the rest of the country – bringing with it an enlarged labour force and skills – is also supporting this expansion story.”

How does the Thames Valley and South Coast compare against other UK regions?

Scotland, Northern Ireland and Wales, as well as the North East, are predicted to be the slowest growing economies of the UK over the next three years, and will endure a challenging 2015. These areas of the country, which broadly have lower wages and higher unemployment, are expected to be hit hardest by the Government’s public spending reforms in the form of benefits freezes and spending cuts, which will limit their economic growth in the years ahead.

Baker commented: “While the south will flourish, the growth story is very different in the three devolved administrations of the UK and the North East. Differences in industry structures explain much of the difference. Reading with information and communications accounting for 27% of GVA, more than double the national average, is particularly well placed to benefit from the growth in the digital economy.”

National and regional policies must be designed to work in tandem

Concluding, Baker said that national economic policies such as the rebalancing of public expenditure and support for manufacturing and research and development must be aligned with regional activity.

“Faster regional growth is an extremely laudable objective but will not be achieved by devolved activity alone. A more aggressive manufacturing strategy, with real resources to back reshoring, support for developing and retaining STEM skills and an approach to trade that matches capabilities across the UK to opportunities overseas, must make up the core of national support to regional development.”