South West productivity back to pre-financial crisis levels

The productivity gap that has puzzled economists during the UK’s long-running economic downturn has largely been avoided by the South West, according to a new study.

Professor James Mitchell, of Warwick Business School, has used figures from the Office of National Statistics and then updated them to give a “nowcast” of each region in England.

The Professor of Economic Modelling and Forecasting found that the gap between employment in the North East and real Gross Value Added (GVA), relative to their pre-crisis levels, stood at between 15 and 20 per cent. This indicates that productivity has nose-dived dramatically in the region since the economic crisis in 2008.

Professor Mitchell also found the productivity gap to be significant in Yorkshire, the South East, the West Midlands and London. The capital has seen employment hold up, despite falls in real GVA which are now being reversed.

The economic downturn appears to have left less of a scar in the South West, which contains Bristol, Gloucestershire, Somerset, Devon, Dorest, Wiltshire, Cornwall and the Isles of Scilly.

The North West and the East have also not suffered as much. In the North West, East and the South West productivity appears to be back to at its pre-crisis levels. (Click on the link to see the regional graphs)

The figures are part of a new Global Forecasting unit set up by Warwick Business School, which will also give a regional breakdown of the UK economy each quarter.

Professor Mitchell, who worked at the National Institute of Economic and Social Research for 12 years before joining academia, said: “Out of the nine regions in England, the North East and the Midlands have suffered more than most in the current economic downturn. The North East has suffered badly with employment still four per cent below its pre-crisis levels. Employment in the East Midlands and West Midlands is just over two per cent lower.

“Productivity has not bounced back as in previous recessions, but there is considerable uncertainty about the data and the productivity pattern. The productivity gap does appear to vary regionally. It is most acute in London, the South East, the North East and Yorkshire. But it is also quite wide in the West Midlands.

“There is uncertainty about the current and future path of productivity. Is potential productivity greater than actual productivity? This matters as the size of the current output gap is central to our view of likely future economic growth. If the recession has left a significant scar – and permanently lowered trend growth by reducing productivity – then we should expect less of a rebound when things do pick up. The fact that there appear to be regional variations in how the recession has affected productivity suggests that when recovery does come some regions may fare better than others”

Using his “nowcasting” models Professor Mitchell is aiming to give a quarterly regional breakdown of the UK economy.

“There are limited up-to-date data for the regions,” said Professor Mitchell. “The Office for National Statistics have broken real GVA down by region, but the data are annual and three years out of date. Using econometric models we will produce more timely real output data for the regions. We will ‘nowcast’ the ONS’ GVA regional data on a quarterly basis.

“There is a need for up-to-date economic data for the regions. Everybody is looking for growth, where they live and work, but how will they know if they have found it without these data given that official data are published with so much of a lag and using them is akin to driving looking though the rear-view mirror. This is the beginning of our research agenda and we hope that improved regional data will facilitate better decisions by both business and Government.”

Click here to see the regional graphs of the productivity gap in the UK.