Resilient Local Economies:

surviving the economic

downturn

Policy Insight
Winter 2008
Resilient Local Economies: surviving the
economic downturn
It is official – the UK is entering recession.
Figures for the third quarter released in late
October and November show sharp declines
in output and employment.
Output fell by 0.5%, the biggest fall
since the early 1990s, and
unemployment hit 1.8 million, its
highest since 1998.1 The
government’s revised forecasts,
published in the Pre-Budget Report,
put output growth for 2009 in the
range of -1.25% and -0.75%, a
sizeable revision in comparison to the
forecasts published in the 2008
Budget of March this year.
Figure 1: Slower growth in the regions in 2009
1
National Statistics, Gross Domestic Product, October
2008 and National Statistics, Labour Market Statistics,
November 2008.
New data released by Experian
suggests that the effects of the
recession will be felt across the board
with all regions already experiencing
decline in both output and
employment. 2009 will be a year of
falling employment, falling consumer
spending, hard-pressed business and
financial services. Recovery will be
slow, but there remain sound long-
term prospects.
Although job losses and falls in
economic activity affecting the UK
economy are constantly in the news,
less is known about the differential
effects of the recession at the local
level. Which cities and industries are
more exposed and which ones are
more ‘recession-proof’? How long will
the downturn last? Which trends are
short term and transitory and which
are long term and permanent? And
most importantly, what does it all
mean for policy? How will these
trends affect resource and strategy
planning, especially in light of recent
key policy announcements, such as
the Pre-Budget Report and the
implementation plans for the Sub-
National Review?
In a tough economic climate
identifying those factors that make
cities and towns resilient to adverse
change is crucial. In this way,
policymakers can ensure that their
current economic development
strategies deal with potential short
and long term challenges and
capitalise on any possible
opportunities such trends present.
Policy Insight | 1
This is all the more important given
the government’s renewed
commitment to devolving decision-
making to the local level. In
particular, encouraging economic
policy formulation at the right spatial
level and streamlining strategic
regional economic planning will help
regions, cities and towns to
effectively plan their recovery from
the economic downturn.
The short term: which UK regions
and cities are the most ‘recession-
proof’?
The evidence is clear: during the
second and third quarters of 2008 all
regions have experienced sharp
declines in economic activity and
employment levels. The slowdown in
the regional economy is the result of
numerous national and international
factors. Tighter credit markets, a
slowdown in the housing market, and
rising food and energy costs have all
eroded consumer confidence and
people’s level of disposable income.
Experian forecasts that all regions
will experience a sharp decline in
economic activity (GVA) during 2009,
with London, the East of England, the
South West, and Yorkshire and the
Humber experiencing the highest
differences between their growth
rates in 2007 and 2009. The North
West and the East Midlands appear
to be less affected with smaller falls
in their GVA growth rates (figure 1).
Although this is a broad-based
recession with tighter consumer
spending and credit market
constraints affecting all regions,
sectoral make-up remains relevant in
explaining why certain regions and
localities are more exposed to the
downturn than others.
2 | Policy Insight
Analysis carried out using Experian’s
Regional Planning Service shows
that those areas highly dependent on
financial, business and consumer
services will face the more immediate
downside risks. Tight credit
conditions, falling business
confidence, job losses and falling
house prices are all factors
particularly affecting these sectors.
Unsurprisingly, at the regional level
these sectors are heavily represented
in the Southern regions, eroding, at
least temporarily, the South’s
advantage.2 Scotland will also suffer,
given its dependence on the financial
and private services sectors (figure
2).
2008 2009 2010
2.5
annual % change
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
Scotland Greater East of South South Wales Yorkshire North West Northern East North
London England West East & East Midlands Ireland Midlands West
Humber
Source: National Statistics, Experian
Figure 2: Regional GVA annual growth rates, 2008-2010
Other industries, especially
construction and real estate, will
suffer as a consequence of their
supply chain links with these sectors
and the slowdown in the housing
market; in fact, many housing and
commercial developments dependent
on private investment have already
come to a halt.
2
Experian’s Regional Planning Service.
 Coventry, Liverpool, Derby and
Manchester appear more resilient to
the current downturn.

Although actual spatial outturn is

difficult to predict – since it is highly
sensitive to changes in individual
companies and consolidation activity,
among others – again different
effects at the local level can be partly
explained by sectoral composition.
Cities highly dependent on financial,
business and consumer services,
such as London, Edinburgh, Sheffield
or Leeds, are more exposed to the
short-term effects of the recession
(figure 4).

In contrast, those local areas

dependent on other sectors or with F
largely balanced economies are
expected to be less impacted by the
current downturn. But it is worth
stressing that consumer spending,
the key driver behind UK growth in
Difference recent years (growing at a faster rate
GVA 2007 GVA 2009 Job
between than overall output for a number of
Cities (annual (annual losses
2007 & years), will be tighter everywhere.
growth rate) growth rate) 2009
2009
Inner London 5.1 -1.6 -6.7 -44300
Weathering the storm: the long
Bristol, City of 3.8 -1.9 -5.7 -3590 term prospects
Sheffield 4.4 -1.1 -5.6 -4620 How long will the downturn last? The
Brighton and Hove 3.5 -1.8 -5.3 -1890 goods news is that by 2010 we
expect the economy to show signs of
Leeds 4.3 -0.8 -5.2 -5200
mild recovery, with the effects of the
Edinburgh, City of 1.8 -3.4 -5.1 -4980 recession most severely felt during
the rest of 2008 and 2009 (figure 2).3
Figure 3: Slower growth at the local level in 2009
Source: National Statistics, Experian. Job losses are full time equivalent. So the main effects of the downturn,
although as deep as the recession of
the 1980s and as relatively prolonged
More generally, a widespread as that of the 1990s, are thought to
slowdown in economic activity is also be temporary. In the long term,
apparent at lower geographical levels regional productivity and annual GVA
(figure 3). In particular, cities such as growth will recover, although in many
London, Bristol, Sheffield, Brighton cases, they will not return to pre-
and Leeds which experienced strong recession levels.
growth up until 2007, will see deep
falls in their growth rates. And
although there are no ‘recession-
proof’ cities, some places such as 3
Some are already suggesting that it may last longer,
slipping into early 2010.

Policy Insight | 3
In addition, a decline in the Job losses (FTE) 2009 2010 2009 2010
production and growth of the financial
% of total % of total
services sector, and the end of cheap
capital and debt-financed growth are Inner London 31,000 17,200 3.2 1.8
likely to become permanent features Outer London 9,380 7,550 2.4 2.0
of the current downturn.4 Consumer Glasgow 3,160 600 3.3 0.6
spending is forecast to grow about
Edinburgh 3,000 200 3.1 0.2
2.4% p.a. (in line with economic
output growth - rather than above it Leeds 2,260 900 2.3 0.9
as in recent years). Aberdeen 1,400 500 3.8 1.4
Birmingham 1,350 800 1.3 0.8
At the same time, some deep rooted
Newcastle 1,250 450 3.2 1.2
historical trends are likely to continue
their course. New research published Sheffield 1,150 600 2.4 1.3
by NESTA5 highlights the importance Norwich 800 250 3.0 0.9
of global and regional networks for
innovation and for local economies to Figure 4: Job losses in the business and financial services sector
remain competitive in recessionary
times. In this respect, the report finds
that London, the South East, the East
North South
of England, and Scotland’s central
3.0
belt, are the regions best equipped to
annual % change
face the tough economic climate in
2.5
the long term. This also means that
the stubborn North-South divide is
2.0
likely to be a sustained feature of the
UK’s spatial economy (figure 5).
1.5

The North-South divide is also

reflected at the city level with many 1.0

cities in the greater South East, such

as Reading, Milton Keynes, 0.5

Peterborough and London featuring

strong average growth over the long 0.0

term (figure 6). However, some Population Employment GVA Productivity

northern cities – for example Source: National Statistics, Experian.

Manchester and Leeds – buck the Figure 5: Regional growth, 2010-2026

trend. This exposes the well-known
complexities of the North-South
divide, and reflects these cities’
strong economic performance pre-
recession.
4
Also worth noting is the fact that But it also reflects their solid
many cities expected to do relatively fundamentals, appearing better
well in the longer term, such prepared to weather the storm and
as Leeds, Bristol, Nottingham and sustain growth over the longer term.
Edinburgh are also among the cities
expected to be hit hardest in the
short term. To some extent, this is

5
Experian’s Regional Planning Service. explained by the fact that some of
Sami Mahroum, Rob Huggins, Naomi Clayton, Kathy Pain
and Peter Taylor (2008) Innovation by Adoption - them have a history of strong
Measuring and mapping absorptive capacity in UK nations performance, which means their
and regions. London: NESTA. Available on
http://www.nesta.org.uk/nesta-ceo-highlights-recession- short-term falls will appear sharper in
busting-strengths-of-uk/
relative terms.

4 | Policy Insight
Rank pre- Rank Average Annual business services that characterised
recession 1997- Cities GVA Growth 2010-
2010-2026 the 1990s and early 2000s, and that
2006 2026
10 1 Reading 3.5 to a certain extent drove expansion of
1 2 Milton Keynes 2.9 these cities, comes to an end, with
the sector smaller and more
29 3 Nottingham 2.9
consolidated in the future.
23 4 Northampton 2.6
42 5 Portsmouth 2.6
Another important aspect of the
40 6 Bristol 2.6 current downturn is that cities, as
8 7 Cardiff 2.5 major hubs of skilled labour,
7 8 Inner London 2.5 innovation and economic activity will
15 9 Manchester 2.5 continue to play a key role in driving
27 10 Peterborough 2.5 economic growth. Unsurprisingly
38 11 Bradford 2.5 major cities – London, Bristol, Leeds,
32 12 Edinburgh 2.5 Manchester, Edinburgh and
17 13 Outer London 2.4 Nottingham – all feature among those
18 14 Leeds 2.4 places likely to experience high long
term growth.
11 15 Luton 2.4
25 32 Wolverhampton 2.0
Finally, although shadowed by the
45 33 Aberdeen 1.9
immediate impact of the recession,
36 34 Middlesbrough 1.9 cities and regions will also have to
34 35 Wrexham 1.9 accommodate other ongoing long
22 36 Kingston upon Hull 1.8 term trends. These include
37 37 Leicester 1.8 international migration, the ageing of
43 38 Ipswich 1.8 the population, continued growth of
21 39 Newcastle Upon 1.8 emerging economies, technological
16 40 Stockton-on-Tees 1.6 advances in communication and
31 41 Dundee 1.6 scarcity of natural resources.
19 42 Norwich 1.5 Although the exact shape that these
changes will take is still uncertain (for
12 43 Sunderland 1.5
example, there are already signs that
20 44 Liverpool 1.5
some migrant workers have left the
46 45 Stoke-on-Trent 1.4
UK with the recession, a trend that
9 46 Bournemouth 1.0 might change once the economy is
back on its path to recovery) there is
Figure 6: Average annual growth rates 2010-2026
Source: National Statistics, Experian. no question that many of these will
remain key challenges during the
next decade.
In addition, some cities expected to
see high growth rates in the long What does it mean for policy?
term feature strong relative Given the impact of the current
improvements with respect to their slowdown on output and
position pre-recession. This is the employment, it is crucial to
case for Portsmouth, Bristol and understand how regions, towns, and
Nottingham (figure 6). By contrast, cities can be more resilient to
other cities, most notably adverse change. This is all the more
Sunderland, Norwich and important at a time where devolution
Bournemouth, will show a sharp of economic development policy
decline in their relative position as the powers and responsibilities to the
strong growth in financial and local level is at the centre of

Policy Insight | 5
government policy, as was made
clear in the Pre-Budget Report and
the implementation plans of the Sub-
National Review. The latter will allow
regional and local governments to
tackle the local impacts of the credit
crunch at the right spatial level.
In the short term all regions will be
suffering job losses and declines in
economic activity and those cities
with a higher dependence on
financial and consumer services will
be hardest hit. Many policy levers to
deal with cyclical shocks, such as
monetary and fiscal policy, to a great
extent lie within Whitehall. And
national government has been
relatively quick to act, propping up
large parts of the banking sector,
announcing increased support for
small businesses and tax cuts in the
Pre-Budget report, bringing forward
major capital infrastructure projects
and implementing sharp cuts in
interest rates to stimulate consumer
spending.
But regional and local government
have a key role to play, given the
recession will hit different
businesses, individuals and ultimately
areas in different ways. Regional
agencies, in coordination with HM
Treasury and the Department for
Business, Enterprise and Regulatory
Reform (BERR), have produced a
series of Regional Economy
Documents setting out the challenges
the current climate is posing to their
economies and how these are being
addressed. In addition, a New
Regional Economic Council has been
created to ensure that local level
concerns, particularly those of
smaller businesses, are heard and
acted upon across government.
6 | Policy Insight
Robust and timely intelligence on
regional and local economies
Most importantly, given that the
specific characteristics of regional
and local economies mean that each
may be affected differently by the
current economic situation, local
knowledge is critical to ensure that
There must be increased
those businesses and households
most at risk are targeted in the right
efforts to generate and
way and at the right time. In a volatile draw on up to date
economic climate, lags in official data figures on macro-
mean that the most up to date economic and micro-
indicators available do not level trends to ensure
necessarily reflect current conditions. that key policy decisions
There must be increased efforts to
are not based on past
generate and draw on up to date
figures on macro-economic and
economic performance.
micro-level trends to ensure that key
policy decisions are not based on
past economic performance.
Many regional and local players are
already pursuing this objective, and
Experian are currently working with
the North West Development Agency
to model up-to-date intelligence on
the regional economy and to identify
businesses most at risk of failure in
the current climate.
Targeted support for businesses
most at risk
Businesses, particularly small and
medium sized ones, will increasingly
suffer from credit constraints and will
need support to access finance.
Moreover, many business leaders
may not have steered their
companies through a recession
before and may therefore require
extra support in formulating
appropriate business strategies.
Regions and local authorities can act
as key brokers between business
needs and government support, via
Business Link and mentoring
schemes.
 In fact, many regional agencies are
using Business Link flexibilities to re-
focus their business support
initiatives and address key areas of
concerns, such as advice for debt
management, new markets and
product development.
But it essential that these agencies
are proactive and targeted in their
approach, in particular by focussing
support on those businesses most at
The fundamental drivers risk and those showing the early
of growth such as warning signs of failure.
innovation and
enterprise, skills, and Help for communities hardest hit
by the downturn
connectivity with
The current downturn will also impact
regional, national and different areas, communities and
global markets will households in different ways, and the
remain the key net effects of falling house prices, the
competitive assets in the plummeting stock market, high
future. commodity prices and interest rates
cuts on household balance sheets
vary significantly. Some regional
agencies are also specifically
targeting those experiencing recent
job losses. In one example, Yorkshire
Forward, together with the Learning
and Skills Council and the regional
Financial Services Skills Academy, is
tracking those areas of the regional
financial services industry that are
seeing increased activity and
recruitment, so that people who may
face redundancy from other parts of
the industry in the coming months
can be retrained and redeployed.
Moreover, with smaller numbers of
job opportunities, extra efforts to help
those furthest from the labour market
will be more important than ever.
There are local initiatives specifically
targeting these groups – Leeds City
Council for example has recently
launched a partnership with the
College of Building to train the long-
term unemployed in construction
skills so that by the time the economy
recovers the workforce is ready to
deploy their new skills.
In addition, developing a good
understanding of functional economic
areas – how the economy actually
works irrespective of administrative
boundaries – will be critical. The
government’s recent push towards
sub-regional collaboration recognises
economic linkages, such as travel to
learn, spend and work patterns, as
crucial and in this current climate it is
essential to recognise that the impact
of job losses stretch far beyond
administrative boundaries.
Investing in the fundamentals to
achieve long-term goals
But ensuring that local economies
are resilient to adverse change is not
only about dealing with the
immediate impact of the recession –
it is also about anticipating long-term
trends and making sure that public
sector strategy capitalises on these.
Alongside challenges, structural
change and other longer term trends
will also present new opportunities –
although the latter often fail to
capture the same amount of
attention.
The fundamental drivers of growth
such as innovation and enterprise,
skills, and connectivity with regional,
national and global markets will
remain the key competitive assets in
the future. Recessionary times
provide an opportunity for cities and
regions to go back to fundamentals,
and invest in key areas for long-term
growth, typically transport and
housing infrastructure or building up
the skills base.
As an example, Yorkshire Forward is
using the flexibility in the single pot
and European Social Fund to
enhance the LSC-funded Train to
Gain service to ensure that training
Policy Insight | 7
continues despite tighter budgets.
Similarly, the NWDA has put forward
a £40 million package to target
training in leadership and
management skills in their priority
sectors. Maintaining focus on long-
term priorities in the face of short-
term challenges is essential: keeping
investment in the fundamentals on
track must be a priority for policy
makers in all tiers of government.
Identifying resilience
The downturn has made clear the
need for resilient regional and local
economies. Identifying those factors
that contribute to a resilient economy,
analysing to what extent these
factors are present in regions’ major
towns and cities, and ensuring that
these are fully reflected in future
regional and local economic
strategies will be a critical challenge
of the next few years.
Paula Lucci
Managing Economist
Experian Public Sector
T 44 (020) 7746 8227
paula.lucci@uk.experian.com
8 | Policy Insight
For further information on how
Experian can help you assess
local resilience, monitor macro
economic developments, or target
support at businesses and
individuals most in need of help,
please contact:
Heather Wells
Associate Director – Economic Policy
T +44 (020) 7746 8242
M +44 7966 028 263
E: heather.wells@uk.experian.com
For further information on
Experian’s Regional Planning
Service and Local Economic
Forecasting capabilities, please
contact:
Michelle Cha
Business Development Manager
T +44 (020) 7746 8244
M +44 7817 889 484
E michelle.cha@uk.experian.com
All data quoted in this briefing
note has been provided by
Experian’s Regional Planning
Service (RPS).
The RPS provides comprehensive
analysis and forecasts of activity,
employment, incomes and spending
at the UK, regional and sub-regional
levels.
Building on our in-house economic
modelling and policy capabilities
developed over more than a decade,
Experian can provide bespoke
economic intelligence reports,
examining how resilient local
economies are likely to be in the face
of these unprecedented conditions.
More specifically they provide:
• Our view on the current
macroeconomic context
• The key factors driving change
• An overview of the recent
performance of your local
economy
• An assessment of the economic
resilience of your local economy
• Guidance on the businesses and
communities most in need of
support
• The long-term outlook and key
challenges and opportunities
faced by your economy
These economic intelligence reports
can be tailored to meet your exact
requirements and hence can help
answer the pressing questions that
will aid your planning and decision
making.
©Experian 2008
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