Credit crunch squeezes north/south divide

The global credit crunch is set to slow the UK economy but also narrow the north/south economic divide.

The latest regional planning report from Experian claims UK GDP growth – the measure of economic development – will slow to 1.8 per cent in 2008 and 1.5 per cent in 2009, compared to three per cent in 2007.

In recent years the south's economy has grown at one per cent over that of the north – but the slowdown will now narrow the gap significantly, it is predicted.

William Thomson of Experian said: "Financial services jobs are particularly vulnerable as the fallout from the credit crunch continues.

"We expect net job losses in banking & insurance to total 40,000 over the period 2008-2011, with 19,000 of these in Greater London.

"The City of London will bear the brunt of the job losses in the capital, with firms expected to shed 10,000 jobs. Westminster and Tower Hamlets will also see lower financial services employment."

In fact, next year the north/south growth division will disappear for the first time since 2002, claims Experian, chiefly because of the abrupt slowdown for London.

However, the south is forecast to pull ahead again, but the gaps seen in the recent past should not be repeated.
Data yesterday from the National Institute of Economic and Social Research (NIESR) points to economic growth declining in 2008 with GDP growth down to 0.4 per cent over the last three months.

With the slowdown, not only will the financial sector be hit, but also hotels and catering, as well as sectors dependent on the floundering property market.

"Tighter borrowing conditions and more expensive mortgages will bring about a decline in UK house prices of 7.6 per cent over the next two years," said Mr Thomson.

"But the boom of early 2007 was uneven regionally and the correction will be more severe in some regions than others."

Falls in house prices are expected to be felt most heavily in the West Midlands and the south-west – with price fall of ten per cent by mid 2010, Mr Thompson forecast.

He added: "Winners and losers in the housing market do not fit a strict north/south pattern.

"The south-east and east of England will see declines in excess of five per cent over the next couple of years. Affordability is lowest in these areas, with house prices more than eight times income levels, and with banks tightening lending conditions this will result in falling prices.

"Unlike the other regions in the south, prices in Greater London are expected to hold up."

However, the capital could still face a larger property slowdown if widespread job losses and more restrictive credit conditions continue.
House price growth is predicted to be 3.6 per cent in Wales and three per cent in the north-east by mid-2010.

Daniel Barnes