One area where London holds back the UK economy

Last week the ONS released data on value added in the non-financial business economy, as part of the Annual Business Survey. This release focussed on the approximate Gross Value Added (aGVA) by local activity of businesses in the UK economy. The headline result is that the aGVA of the UK economy in 2012 was 2.9% above that seen in 2008, at the start of the recession. However, the interesting thing is that London is not leading this growth.

Only 7 out of 12 regions show aGVA levels above those of 2008 with London one of the 5 regions where economic activity in the non-financial business economy hasn’t returned to 2008 levels. The others are; the North East, Yorkshire and the Humber, Scotland, and Northern Ireland. Looking at the table below, London’s contribution to the UK’s aGVA is large (23%) but it has also shown a bigger fall in absolute aGVA since 2008 than all but two regions.

Source: ONS - UK Non-Financial Business Economy (Annual Business Survey), 2012 Regional Results

London’s fall in value added is mostly due to a large fall in distribution sectors, such as retail, wholesale and motor trades, despite large growth in its service sectors. A proportion of this, as the ONS makes clear, is due to reclassification but by no means all. Whilst London’s strengths lie in services, the growth shown in the East Midlands represents the strength of the production sector, with the East Midlands registering a 15.6% rise in aGVA in production between 2011 and 2012, with the largest increase in manufacturing, to leave its aGVA 14.3% above its 2008 level.

London is still a large driver of growth in the UK, but this release shows us that economic recovery is happening across the country. London’s non-financial economy has taken a hit since the recession, a hit that the more manufacturing focussed regions have been able to recover from more quickly.

Oliver Hicks-Pattison, Researcher, Tooley Street Research

July 30th 2014