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Overview
KPMG’s Local Business Pulse Index (LBPI) presents forward-looking and data-led insights on the UK’s economic geography.
Using interactive maps and deep dives into 363 areas across the UK, it presents a new typology of local places and a view across the productive strengths and growth opportunities of each area.
Developed in partnership with the University of Nottingham, the Index utilises a combination of machine learning methods, geographic data points and surveys of business leaders across the UK.
Using the Local Business Pulse Index
The LBPI places 363 localities into one of six economic clusters, each with common economic and business conditions, and a single dominant characteristic.
It also allows users to explore the performance of each area in depth, using the interactive map below, and across a range of data points in the corresponding Deep Dive area profiles.
Alongside the cluster analysis, the various elements of LBPI together generate a combination of new insights at each quarter of the year, including:
- A series of headline trends, detected across the UK economy
- Expectational data within each locality, including forecasts for sales, employment and investment growth
- Updated data points and visualisations, including an indication of where areas may have transitioned between clusters.
Key trends across the UK economy
The index shows the following trends in across the UK economy at Q4 2023:
- The anticipated slowdown in the UK economy caused by higher interest rates is reflected in lower reported levels of expected sales growth and investment growth by firms. This is reflected at the local level, with 10% fewer localities in the Sales Growth and High Research and Investment cluster compared with the Q3 update
- Despite the national slowdown in activity, firms in some localities are reporting above-average expectations for employment growth over coming quarters. This sees a selection of localities entering the employment growth cluster including York, Bath and North-East Somerset, Cheshire East and Trafford
- Localities across the UK are also proving more resilient to the slowdown in consumption growth at the national level. East Riding of Yorkshire, Bournemouth, Christchurch and Poole, North East Derbyshire, North Hertfordshire and South Staffordshire are among the localities entering the consumption growth cluster for the first time
- Clusters of localities remain distinctive for their relatively high productivity and rates of new business creation. These two clusters together contain approximately one third of localities, such as Rutland, Wealdon, North Somerset, Stirling and Spelthorne which have featured in the high productivity cluster is all four releaeses of the index to date
The following trends have been detected across the UK economy at Q3 2023:
- The leading growth centres for research and investment are spread across the regions with Birmingham, Bristol, Edinburgh, Glasgow, Leeds and Manchester showing highest rates of growth in research and investment, including development, R&D spend and venture capital investment
- New business creation is strongest across the devolved nations and regions with Wales, Northern England and Scotland, East Anglia and the North East experiencing the fastest rates of new business creation
- Investment in digital and remote working technologies is benefiting the midlands and northern cities, with firms in these areas reporting high rates of investment in new technology, and faster adaption to working form home
- New job openings and employment growth is strongest in London and the south east, with firms in these localities showing the highest expected growth rates in employment over coming quarters
- Places outside of London are leading the recovery in business research and investment and productivity. While investment has historically been skewed towards London and the South East, highest expected investment is now seen across the South West, Wales, Northern and Eastern England
- Areas outside of large cities are benefiting most from the work-from-home revolution. Employers and employees report the greatest benefits of work from home are found outside of bit cities, allowing workers to avoid long commutes and wasted productive hours
- The coastal tourist economy bucks the work-from-home trend. The tourism-heavy coastal economy with a high share of hospitality and leisure services has seen strong growth in face-to-face service delivery, as consumer seek holiday experiences to balance their work-from-home lifestyles
- London retains its strength in attracting venture capital, which contributes to it being an area characterised by high research and investment. Venture capital growth remains highly concentrated in London, with a large share of R&D expenditure also concentrated in the City, which continues to experience the benefits of the agglomeration economy
Economic clusters across the UK
The LBPI segments localities into six clusters. Taken together these present a new typology of places in the UK that can be explored below.
Using the dropdown navigation adjacent to the map, users can navigate between a range of perspectives, viewing the distributions of clusters across individual localities, regions and nations, and across the wider UK.
Machine learning technology segments each locality into one of the six clusters indicated below. Within these groupings, localities share a dominant strength that defines their performance in a given quarter, they also share wider economic characteristics. These categorisations reflect changes in the local business cycle, and therefore provide a barometer of conditions within a certain quarter that may change over time.
Equally, a locality may be placed within one particular cluster – because it performs strongly across certain data points – but can simultaneously demonstrate attributes of another. As such, the Index operates as a barometer of cyclical business conditions, rather than as a series of structural, place-defining descriptions.
Local area deep dive
The LBPI draws upon detailed geodata covering the entire population of businesses and consumers across the UK, such as credit file data and online job adverts. It combines this with unique survey data, including Europe’s largest work from home survey and an extensive survey of business expectations.
Each area has a dedicated profile, and can be selected using the locality navigation. Profiles indicate the cluster narrative that a place is affiliated with, depending on its performance across a combination of the following data inputs:
- Productivity: how much businesses are adding value in the production of goods and services, drawing on data covering all sectors and regions.
- Venture capital: investment in new start-up and scale-up ventures, from seed-corn funding to multi-million pound investments.
- Expectations for sales, investment and employment: a unique comprehensive UK-wide survey covering businesses in all sectors gauging perspectives on anticipated levels of sales, investment and employment growth in their firm over coming quarters.
- Employer and employee work from home data: Europe’s largest survey of employer and employee intentions regarding working from home, based upon a representative sample of firms and workers interviewed every quarter.
- New job openings: the register of online job adverts across all occupations, skills levels and geographies across the UK regions.
- New business creation: the complete register of where new businesses have been launched across the UK drawn from company registration data.
- R&D expenditure: total expenditure by firms based in the area on research and development.
If you are interested in discussing the performance of a particular locality, or a range of areas over a specific region, please get in touch. Our team are also able to discuss the catalogue of proprietary, licenced and open-sourced data inputs that are combined within the LBPI.
Methodology
The Local Business Pulse Index applies a machine learning algorithm to generate a set of clusters for localities in England, Scotland Wales.
The process involves data collection and the harmonisation of variables (across Local Authority Districts), and a silhouette analysis to calculate the degree of similarity of localities to establish each of the distinct clusters. Performance characteristics are measured by summary data (relative performance, high to low across quartiles), allowing the Index to demonstrate how certain variables define the cluster narrative.
Our University Partnership: KPMG and the University of Nottingham
Our partnership with the University of Nottingham combines our capabilities and expertise to bring insight to clients regionally and nationally. Joint initiatives, such as the development of the Local Business Pulse Index, offer solutions to support the local growth and innovation agenda, with a focus on advanced data analytics and financial technology.
KPMG: Committed to regional growth and rebalancing
At KPMG we champion the UK economy and we are a firm with a heritage and a significant presence across the UK regions. Our perspective comes from employing 17,000 people across 20 offices in the UK, and through our work providing assurance to companies, supporting the delivery of public services, and advising on major investments.
We are committed to regional rebalancing, and we believe unlocking local, productive potential is key to regional growth. That means there’s an important role for business and the private sector because investment in a place can create the conditions where companies locate and grow.
With insights from our Local Business Pulse Index and from our experts across our regional markets, we are helping organisations drive growth and productivity and build on local strengths. Please do get in touch if you would like to learn more about our capabilities.
