Regional differences and their importance for the UK economy

Quarterly Bulletin 1994 Q4
Published on 01 December 1994

By Andy Murfin and Kieren Wright of the Bank’s Structural Economic Analysis Division.

This article offers an analysis of regional economic performance in the United Kingdom, looking both at longer-term trends and the short-term outlook. It incorporates data published by various sources during the first three quarters - including government statistics and industrial surveys - and includes information from the Bank’s Agents. A number of points are highlighted:

  • Generally, the differences in the average income levels of the regions have been persistent over the last two decades. The main changes in regions’ relative incomes have affected the West Midlands and the North West (adversely), and Scotland and East Anglia (positively). The South East has consistently been the most prosperous region and Northern Ireland the least.
  • The dispersion of regional growth rates tends to widen in a recession, as some regional economies are more cyclical than others.
  • Labour mobility between regions is low, compared with countries such as the United States. Despite this, there has been an unprecedented convergence in regional unemployment rates recently, while the corresponding earnings differentials have widened. The convergence in unemployment rates seems largely the result of the recent recession, which had a particularly big impact on the South East.
  • At present, the recovery seems well-balanced and all regions are growing. The evidence suggests that the South and the Midlands are growing relatively strongly.
  • Regional house prices have yet to rise consistently in the present recovery; business and consumer confidence remains generally fairly subdued.

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