East Midlands’ economic growth to remain modest in 2019-20 due to Brexit-related uncertainty

  • Economic growth in the East Midlands to remain modest at around 1.2% in 2019 and 1% in 2020, assuming an orderly exit from the EU, but risks are weighted to the downside

  • All regions of the UK projected to see modest but positive growth in 2020

  • Consumer spending has continued to drive the economy so far, but the housing market has cooled and business investment remains on a declining trend

  • Regional productivity in the East Midlands is around 15.6% below the national average 

  • The Bank of England is expected to keep interest rates on hold until there is clarity over both Brexit and the global economy

PwC’s latest UK Economic Outlook projects that economic growth in the East Midlands is likely to hold pace with that of the UK, growing by around 1.2%  in 2019 and 1% in 2020.

The report  projects that UK economic growth is likely to remain subdued, growing by around 1.2%  in 2019 and 1% in 2020 - significantly below its long term average rate of around 2%. 

According to the report, economic growth has slowed over the past two years primarily due to a dampening of business investment, resulting from both a lack of clarity over Brexit as well as heightened global trade tensions. 

Although consumer spending has continued to drive the UK economy, supported by recent rises in real incomes, a cooling housing market coupled with slower jobs growth means there is likely to be only moderate consumer spending growth of around 1.2% in 2019 and 1.4% in 2020.

Paul Norbury, Office Senior Partner for PwC in the East Midlands, said:

“It is positive to see that the East Midlands’ economic growth is predicted to hold pace with that of the UK, despite the economy being likely to remain choppy throughout the rest of this year and in early 2020. 

“However, there could be a modest bounce in business investment later in 2020 if the UK achieves an orderly Brexit, but the uncertain global economic outlook could hold back a stronger recovery in investment next year.

“Most industry sectors are projected to see relatively modest growth in 2019-20, although short-term trends remain volatile and highly dependent on how events develop on Brexit. The manufacturing and construction sectors have experienced considerable volatility in recent years and are unlikely to see sustained recovery until there is clarity on both Brexit and the global trade outlook.

“Given the ongoing Brexit negotiations, any economic projections at present must be subject to some element of speculation. Organisations should therefore stress test their business and investment plans against alternative economic and political scenarios and review the potential wider implications of different Brexit outcomes for all aspects of their operations.”

PwC estimates that all 12 UK regions will see modest but positive growth in 2019 and 2020. Although in previous years London has generally had the strongest growth rate of any UK region, PwC predicts it will grow only slightly faster than the UK average in 2019-20, due partly to the greater exposure of some London activities, such as the City, to adverse effects of Brexit uncertainty. 

Jing Teow, senior economist at PwC commented:

“Our latest projections indicate that the South East, South West and Scotland should perform reasonably well both this year and next, but the differences from the UK average growth rate are small. 

“By contrast, the North East, Wales and Northern Ireland are projected to lag behind slightly with growth of only around 1% in 2019 and 0.8% in 2020.”

As inflation has fallen back below the Bank of England's 2% target in recent months, real earnings have started to grow again at a relatively strong pace. While this upward trend is expected to continue into 2020, it is difficult for strong real wage growth to be sustained on a longer-term basis unless productivity also picks up. The productivity challenge is the focus of the special research articles in PwC’s latest UK Economic Outlook

Regional productivity

The report examines UK regional productivity, revealing wide variations in domestic productivity per job, as well as from an international perspective. PwC concludes that UK output per worker is around 10-15% behind Germany, France and Sweden and more than 30% behind the US. 

Regional productivity gaps are large, with output per job in London around 40% above the UK average, but around 15.6% below the national average in the East Midlands. In addition, the gap between the best and worst performing local enterprise partnerships (LEPs) in England is widening, with productivity in the highest-ranking LEP being around 2.1 times more than the lowest-productivity LEP in 2017, as compared to 1.8 in 2002.

Paul Norbury added: 

“Places that are better connected physically and have access to skilled workers tend to have higher productivity levels. Evidence in the report suggests increasing skills has a direct impact on increasing productivity in a local area. Similarly, physical connectivity also matters, which reinforces the case for increased investment in transport infrastructure.

“Businesses, local authorities and LEPs, should continue to work together holistically to help close the productivity gap. Initiatives and investment in upskilling our workforce, for example PwC’s learning and development programmes such as our ‘tech for all’ digital programme, is enabling us to upskill our workforce for the future.”  

The report suggests a number of strategies that could be employed to help boost productivity across the regions. Notably, businesses can promote workplace training and upskilling, a recommendation that is reinforced by PwC’s recent global skills survey, which showed that the desire of UK employees to learn new skills is not being met by employers. In addition, investment in local infrastructure could boost connectivity (and therefore productivity). LEPs could collaborate to strengthen intra-regional connectivity. This could utilise the Oxford-Cambridge arc as an example, which is supported by four LEPs in an effort to boost east-west transport connectivity through the East West Rail and Expressway.

Productivity figures for the UK and each region (GVA per filled job in 2017)

United Kingdom 

£54,330

North East

£47,117

North West

£49,503

Yorkshire and The Humber

£44,953

East Midlands

£45,875

West Midlands

£47,928

East of England

£50,398

London

£77,125

South East

£57,675

South West

£46,761

Wales

£44,780

Scotland

£52,643

Northern Ireland

£47,451

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