Chief Economist’s note: COVID-19’s regional jigsaw

Chief Economist’s note: COVID-19’s regional jigsaw

Yael Selfin, Chief Economist in the UK discusses the regional impact of COVID-19.

Yael Selfin - Chief Economist at KPMG in the UK.

Chief Economist

KPMG in the UK


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Impact of COVID-19 on UK regions

  • Regional economic divide could be altered at the margins by the crisis.
  • Current economic crisis to spare some of the poorer rural areas and those reliant on public sector employment.
  • Industrial heartlands to suffer disproportionally.

The UK economy entered the current crisis polarised: how will COVID-19 redraw the regional map? We used our detailed sector forecasts to estimate the impact the pandemic will have on local authorities this year. High value-add service-based city centre economies, which benefit from workers’ ability to continue working remotely, are expected to weather social distancing rules relatively well. While other areas that have traditionally performed relatively poorly could also be more insulated, thanks to a bigger reliance on public sector and agriculture.

Prospects for 2020 by local authority

Source: ONS, KPMG analysis

Click here to view the larger version of the image.

Middlesbrough is helped by a large presence of public administration and health workers, while the Western Isles of Scotland (Na h-Eileanan Siar) is an example of the relatively milder impact of the crisis in rural areas that depend on agriculture.

However, on the whole, the crisis is likely to exacerbate the divide between the rest of the regions and London and the South East, with six out of the ten least affected areas there. Examples of this include Worthing, with a high share of pharmaceutical manufacturing businesses, and Tower Hamlets and the City of London, which have a high share of financial services firms. 

Top 10 least and most affected local authority areas in the UK

Source: ONS, KPMG analysis

Click here to view the larger version of the image.

Local authorities that rely on transportation, transport manufacturing, construction and tourism are among the most affected. They could all see a drop in output of more than 17% this year.

COVID-19 will no doubt impose new challenges for local authorities. For a start, there will be less money to go around. The pandemic will leave public finances strained, public debt could reach over 100% of GDP, allowing much less room for the levelling-up agenda the government was hoping to pursue prior to the pandemic.

In the short term, the crisis will put pressure on local finances while increasing demand on local services. Local authorities will need to address the immediate challenges, while keeping another eye on ways to respond to future needs.

As we increasingly come to realise, the world post COVID-19 will be different to the world before this crisis. People are likely to work more flexibly and more people will work remotely, based at home, travelling solely for interactive collaboration sessions with colleagues and clients. They will miss the office chats and camaraderie. Local high streets could play a new role in providing that human contact they miss. While online retail will continue to threaten the viability of high street shops, we could see a resurgence in local gyms and exercise groups, as well as restaurants and bars once social distancing is no longer required.

Some of our clients are worried about the prospects for the UK’s main city centres as workers stay at home. There will be a need to redraw the urban landscape. It still makes sense for regional hubs to offer amenities that are too costly to have locally so that they can be efficiently shared more widely using existing transport links. For example, cultural offerings such as museums, theatres, and performance venues and festivals will be better accessed in the region’s main city centres. Universities and other training institutions are also easier to reach students and businesses in the city centre. Rather than offices, we could have collaboration labs between businesses, universities and citizens, with enticing restaurants, bars and coffee shops for breaks, as well as ample green space. Local authorities will need to come together to create thriving central hubs that will serve more than one local area.

Less funding will put pressure to deliver more for less. Here, strong co-operation between local authorities could also help, by sharing best practice, as well as expertise. The next few years will require a new vision and strong capability to implement it. There will be a need to be creative, maximise the use of online delivery of services now that a larger proportion of local authority workers and people are digitally proficient, in order to meet the challenges set by this pandemic and see their local area prosper in the new world.

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