Toscafund’s Savouri on the UK’s greatest regional potential

COMMENT When forecasting what awaits the UK economy, there is perhaps no better analogy than a meteorological one, and a weather forecast is clearly pointless if it fails to provide geographic detail. There will be moments when UK residents bask in the sun, are covered in snow or suffer showers. However, it is rare for these moments to be experienced simultaneously up and down the country.  We believe the UK has potential for significant economic growth in the years ahead, and this provides cause for optimism. While some may hope this growth within the UK economy is evenly distributed regionally, the reality, much like the weather, tells a different story. As such, in unveiling our “regional growth future-ometer”, we can identify Central England and Northern England (CaNE) as a region of key growth potential.  Radial connectivity There is no doubt that certain UK regions happen to be favoured in terms of future economic growth, thanks to their core positioning. Its positioning is most favourable to CaNE. For one, CaNE sits comfortably with 360-degree radial connectivity in logistical terms to other parts of the UK. Further to this, CaNE is well-positioned to capitalise on the certain reshoring of productive capacity and shortening of supply chains; moves driven by both economic and environmental motives.  The UK is also sure to see inventory management within it altered from “just-in-time” to “just-in-case” – requiring greater warehousing capacity. Here too, CaNE sits pretty well. The reality, in short, is that being well-placed geographically within the UK places different regions in a very different economic growth position, some far more favourable than others. A substantial indicator of UK economic growth assessment is the property market. For their parts, the Midlands and Northern regions of England favourably sit between the extremes of Scotland and London in their housing tenure mixes. When creating our “future-ometer”, housing is not simply assessed in terms of accessibility, we also take affordability into account.  With the latter in mind, we assign positive weight to regions where the ratio of private sector rents to private sector incomes are comparatively lowest. Keeping the mobility of households and workers very much in mind and by considering relative regional house prices, regions where homes are comparatively cheap will enjoy a favourable degree of affordability arbitrage, and as a result, see net inwards movement. Regionally, this description most accurately applies to Central and Northern England.  Human capital Central England is also perfectly positioned for economic growth thanks to its topography and population density. Scotland, Wales or, indeed, England’s far South West do not fare as well in these measures; the topography, density and infrastructure – notably the relatively skeletal motorway networks – of these regions are not as favourable as logistical hubs.  For this “honour”, we see Central England as being perfectly positioned. In addition, CaNE has extensive capital – physical and human – vested in manufacturing and, more specifically, automotive engineering capacity. Of the latter, we can be sure it is being rapidly retooled and its workers reskilled by its very commercial owners to quickly produce components, engines and assembled vehicles for our cleaner transport future.  There are certain to be those who argue that any outperformance by CaNE would merely make up for the comparative economic and demographic ground “lost” to “the South” over a great many decades. There will be some who will claim that only extraordinary comparative strength would take CaNE back to the employment and population high-water marks which it boasted in its industrial heyday. The response to those with such reservations is that the strong growth set for CaNE will surprise only those not familiar with its foundations.  Savvas Savouri is chief economist at Toscafund Image: Maitland