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PWC sees growing North-South gap in UK.


London: The historic North-South divide in the UK has widened further since the start of the recession and this is likely to continue against a backdrop of continued very modest UK average growth of only around 1% in both 2011 and 2012, according to a new regional household financial stress index published today in PwC's latest UK Economic Outlook report.

Unemployment in the UK stood at 8% in Q2 2011, up by 2.8% from the end of 2007. UK house prices have fallen by 9.4% on average since their peak in Q3 2007. The public sector, which currently accounts for around 20% of total UK employment, has started this year to cut back severely on jobs. Wage growth has been subdued for some years relative to price inflation, while taxes have risen. All of these things mean that households are facing increased uncertainty and stress about how they will meet their future financial obligations.

John Hawksworth, chief economist at PwC, said:

"Increased financial stress caused by the recession is a concern for households, government and business. Uncertainty about money leads people to stop spending, reducing overall demand and growth. In general, the regions of the South East and the East of England fare better on the index compared to those of the North, the Midlands and devolved territories. This is consistent with the general pattern of regional development that existed before the recession.

"Our research also highlights how different London's experience of the recession has been from the rest of the economy. London performs worse than many other regions on measures such as unemployment rates, but our index demonstrates that the impact of the recession on household financial stress has been less in London than in other regions, although it remains a region with high unemployment.

"We expect UK GDP growth to remain subdued at only around 1% in 2012, with consumer spending flat in real terms next year and unemployment likely to edge up as public sector job cuts outweigh private sector job gains. Unfortunately there will therefore be no early end to the financial pressures on households across the country, while our regional growth estimates suggest some further widening of the North-South divide next year."

Regional household financial stress differences

  • The North East and Wales are the regions that have suffered the greatest increases in household financial stress since the recession began, followed by the West Midlands. A mixture of relatively large increases in unemployment and economic inactivity rates, marked falls in house prices, and significant increases in personal insolvencies have all contributed to these results.
  • In contrast, the South East, the East and particularly London have suffered less since the onset of recession and this pattern echoes the long term trend in UK regional development of a widening North-South divide that has existed for a period extending well before the recession (although London continues to score badly on some measures such as relative unemployment rates).
  • Straddling this geographical divide, the East Midlands region has performed more strongly than the West Midlands on these measures of household financial stress since the start of the recession.

Pat Boyden, business recovery partner and head of PwC's personal insolvency practice, commented:

"'Despite the poor economic climate, personal insolvencies are falling and are predicted to fall considerably over the next five years. The numbers in the peak years of 2009 and 2010 comprised mainly of consumer insolvencies, victims of the credit boom of the first half of the decade. With the lack of lending, particularly in the secondary and sub-prime markets since 2007, the financial problems of many families are now founded in the costs of living, rather than uncontrolled debt."

John Hawksworth, chief economist at PwC, added:

"Closing the North-South divide is more difficult than ever for government. Money is tight and the scope for significant transfers to more highly stressed regions is therefore limited. Businesses selling to households need to consider how their strategies can be tailored to these regional differences in financial stress, which look set to persist for some time to come."

The full report is available here.

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