Manchester’s economy set to be the UK’s third-fastest growing between 2024 and 2026, finds EY report

• Manchester’s forecast annual average of 2.5% Gross Value Added (GVA) growth between 2024 and 2026 is behind only Reading (2.7%) and London (2.6%), and well ahead of the national average (2.1%)
• Manchester also expected to have faster employment growth than all other UK towns and cities from 2024-2026
• The North West’s GVA growth is forecast to average 2% from 2024 to 2026

NORTH: Manchester is forecast to see the third-fastest economic growth of all UK towns and cities between 2024 and 2026, according to EY’s latest Regional Economic Forecast.

When measured by Gross Value Added (GVA), Manchester’s economy is expected to see annual average growth of 2.5% between 2024 and 2026, comfortably outpacing the national growth rate (2.1%). Only Reading (2.7%) and London (2.6%) are expected to see faster growth than Manchester.

The North West is expected to see annual average growth of 2% over the same period – a bounce back from the 0.7% contraction forecast for 2023.

Manchester is also expected to record the fastest rate of employment growth of any UK town or city from 2024 to 2026, with job numbers in the city forecast to grow 1.8% per year over the period. Meanwhile, UK jobs are expected to grow an average of 1.3% a year, and North West jobs are expected to be up 1.2% each year.

Elsewhere in the North West, Liverpool’s economy is forecast to see 1.9% annual average growth from 2024 to 2026 – marginally below the national and regional averages. Positively, the city is forecast to see job numbers average 1.3% growth per year between 2024 and 2026, in line with the national rate and slightly outpacing the North West average.

The North West is expected to have the fastest-growing economy in the North of England between 2024 and 2026, with the administrative & support services, and information & communication sectors set to play a key role for the region’s growth. Manchester’s positive outlook is supported by expectations for the professional, scientific & technical, and financial & insurance activities sectors. By 2026, GVA in Manchester’s local economy is expected to be £2bn larger than in 2022.

Stephen Church, EY’s North Market Leader, said: “The North is home to many of the UK’s most dynamic and innovative businesses and, while the next 12 months will be economically challenging, there are areas across the region where we can expect to see encouraging growth over the next few years. The North’s cities are set to be particularly strong performers.

“However, progress is about the whole of our region, not just our bigger cities. And while several towns and cities are expected to see better economic and employment growth than many other parts of the country, too many places are still expected to trail behind.

“In order to spread growth, not just throughout the country, but throughout regions too, it is critical that the public and private sectors work together to combine their expertise, strengths, and capabilities. The North needs both working in tandem to succeed.

“Looking ahead, the regions across the North need their own clear strategies for growth, which reflect each region’s own strengths and unique attributes. Getting the right sector mix is key, and investment in high-value sectors and skills can help build a sustainable future – not just for the North, but for the whole country too.”

Mixed expectations across the North West

Outside of Manchester and Liverpool, Chorley has reasons for optimism, with forecast average GVA growth of 2.4% per year between 2024 and 2026 – significantly outpacing the national average. Chorley is also expected to see higher employment growth than the national rate for the same period, with 1.4% annual average growth forecast.

Chorley’s prospects are expected to be particularly boosted by the town’s real estate activities and construction sector.

Warrington, Rochdale and Lancaster are all expected to see their economic growth only marginally outpaced by the regional and national rates, with an average of 1.9% growth per year forecast for each from 2024 to 2026. Warrington and Lancaster’s average annual employment growth rates are expected to keep pace with the regional average over the same period at 1.2%, while Rochdale’s is expected to be slightly slower (1.1%).

Carlisle, Blackpool, Wigan and Preston are among the towns expected to experience the most significant economic challenges in the North West, with average economic growth of just 1.5% each per year forecast from 2024 to 2026 – trailing both the national and regional averages.

Carlisle is also expected to have the joint-slowest employment growth in the North West from 2024 to 2026, along with Blackburn, with both forecast to see jobs rise by an average of 0.8% per year over the same period. Blackburn is expected to record average annual GVA growth for 2024-2026 of 1.7%.

The economic gap between London and the rest of the country set to grow again

The EY Regional Economic Forecast also says that the rising cost of living and weaker consumer spending are expected to deepen the economic divide between London and the rest of the UK.

The forecast says that UK Gross Value Added (GVA) is expected to decline 0.6% over the course of 2023, with London (-0.2%) the only part of the country predicted to see a smaller economic contraction than the UK overall. While Scotland is expected to match the overall UK GVA performance in 2023 (also contracting 0.6%), other parts of the UK are forecast to lag behind. Yorkshire and the Humber and the East Midlands are predicted to see the steepest GVA contractions, at 1% each.

Driving the contraction in UK output in 2023 are the forecast declines in services most dependent on household spending. With consumers struggling amid cost of living pressures, this year’s worst performing sectors are expected to include wholesale and retail (-3.3% GVA contraction), accommodation and food services (-2.7%), and arts, entertainment and recreation (-1.8%). Manufacturing (-2.9%), which relies on consumer spending to maintain demand, also faces challenges relating to higher input costs such as raw materials and labour, alongside increased borrowing costs.

At the other end of the spectrum, less consumer-dependent sectors like administrative and support services (0.8%) and professional services (0.1%) are expected to see some growth, while sectors like real estate (-0.2%) and financial and insurance services (-0.5%) are forecast to see smaller contractions than the rest of the economy.

Over the course of 2024-2026, UK GVA is expected to grow at an annual average 2.1%, with London growing 2.6%. The South East (2.2%), South West (2.1%), East of England (2.1%) and West Midlands (2.1%) are also forecast to outpace or match wider UK growth. Like London, the West Midlands and the South West are both expected to be boosted by strong growth in the information and communication sector, which is expected to be the UK’s fastest growing sector in the medium-term.

The pattern in GVA growth is reflected in jobs, with only London, Northern Ireland and Wales expected to perform better than the UK as a whole in 2023. Job numbers in these three areas are expected to be effectively unchanged this year, and down 0.2% across the UK. The West Midlands is forecast to trail the rest of the country, with job numbers shrinking 0.4%. London is also forecast to see the highest increase in its working age population in the medium term, with annualised growth of 1.2% between 2024 and 2026.

Rohan Malik, EY’s UK&I Managing Partner Markets & Accounts, says: “The rising cost of living is likely to exacerbate the differences in regional economic performance, widening regional inequalities and heightening the need for economic policy which spreads growth out across the UK. Levelling-up presents an opportunity to boost growth for the whole of the UK – but familiar patterns are still all too present as the economy recovers from the pandemic.

“London clearly enjoys advantages in economic resilience, skill levels, and in productivity – both in higher and lower skilled sectors. But London’s performance also offers lessons for the rest of the country. Sector composition is key for regional economic performance, for example. Regions need their own visionary sectoral growth plans that define roles for the private sector, alongside government, as investors, employers and economic agents in their regions. It’s also vital to unlock investment in skills and encourage labour retention.

“The key to nurturing a strong sector composition is investment in high value-added sectors, like advanced manufacturing and information and communication. The transition to Net Zero, for example, represents a generational opportunity to rebuild the manufacturing base, upskilling workers in new energy generation and operation capabilities across the value chain from construction of solar farms, heat networks and hydrogen pipelines to electric vehicles and charging infrastructure. A one-size fits all approach won’t work though, and regions need to understand their own strengths, weaknesses, and sub-sector opportunities.

“High value sectors won’t function without a high value workforce and, too often, regions struggle to retain and uplift their skill bases. Fixing this needs to be approached from several angles: graduate and skills retention relies not just on the development of well-paid jobs, but strategic planning on the broader set of social, environmental and structural components that determine the quality of life in a given region too.”

Ends

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