Regional growth trends were turned on their head in 2003, a report by HSBC's economists reveals.
The report shows that London, which is normally one of the fastest-growing regions, was one of the slowest, while the North-East, the worst performer in the late 1990s, was one of the best, with the strongest growth of both employment and house prices.
The HSBC Regional Focus Report 2004 predicts a return of the North/South divide in 2004. However, it expects this will be less pronounced than in the past, with the effect of a deceleration in consumer spending in the South balanced by a combination of factors affecting the North – including a slowing of job creation and a lack of inward investment.
Dennis Turner, head of business economics at HSBC, says: “As the long consumer boom finally runs out of steam, the pressure to rein back on spending and borrowing will be most keenly felt by households in the South. This will help the economy to achieve a better balance, and will also ensure that the growth differential between the regions remains more muted. Yet regions in the North will face new challenges in their quest to keep pace with the rest of the country.
“The UK has performed with remarkable resilience throughout the recent global downturn, but it's not clear that other sources of activity will fill the gap created by declining consumer boom. While the global environment has become more benign, there is little scope for growth to accelerate in the UK. Inflation and interest rates will remain low and the economy will achieve a more sustainable balance. There is, however, a risk that policymakers fail to bring the consumer boom to a soft landing, in which case the outlook could be much bleaker if households are forced into an abrupt retrenchment.”