United Kingdom / Coronavirus Insights
Regional Economies Most Heavily Affected by the COVID-19 Pandemic

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by Samuel Kotze, Industry Analyst
Nov 23 2020

The COVID-19 (coronavirus) pandemic has had varying effects on the different regions of the United Kingdom. According to the Institute for Fiscal Studies, the United Kingdom is one of the most geographically unequal countries when measured against other developed nations, with only Croatia, Poland and Denmark considered less equal.

Through the pandemic, support for the UK economy has mainly come through initiatives to maintain employment levels and through loans to maintain business cash flows during a period of historic uncertainty. Data from HMRC shows that approximately 3.3 million employments in the United Kingdom were furloughed through the Coronavirus Job Retention Scheme (CJRS) as of 31 August 2020. Just over two-thirds of these employees were fully furloughed, with the remainder being partially furloughed. Additionally, the total value of loan facilities approved for UK businesses through the Coronavirus Business Interruption Loan Scheme (CBILS), the Coronavirus Large Business Interruption Loan Scheme (CLBILS) and the Bounce Back Loan Scheme (BBLS) was £61.9 billion as of 18 October 2020, according to data from the British Business Bank.

The effect of the coronavirus pandemic in each UK region can be measured by looking at the total support each region has received since the outbreak of the virus. The majority of support in the United Kingdom has so far been directed towards London, the South East and the North West, primarily because these regions account for the largest shares of the UK population and Gross Value Added.

London

As the capital city of the United Kingdom and the most internationally connected region, London was likely the first region to be affected by the coronavirus outbreak. London accounted 18.1% of all employments furloughed through the CJRS as of 31 August 2020, the largest proportion of any region in the United Kingdom. Although the region is expected to have a large number of office workers and so employees that are anticipated to be able to shift to working from home, it also contains a large number of retail and hospitality establishments, which explains its high share of furloughed employments.

London is considered the fashion and business capital of the United Kingdom and is therefore home to more boutique and luxury shops than the rest of the United Kingdom. Notably, 18.8% of all clothing retailers are located in London, more so than any other region. The capital also includes 19.1% of establishments in the Full-Service Restaurants industry, also more than any other UK region. Given its large share of higher-income households and tourists, London tends to have more upmarket silver-service restaurants with high average expenditure per table.

London has also made great use of loan schemes. In total, the region has accounted for 20.2% and 22.7% of the total lending provided by the CBILS and BBLS respectively, equating to more than £11.4 billion. Lending through these two schemes was heavily skewed towards five sectors in the economy, including the Professional, Scientific and Technical Activities sector; the Administrative and Support Service Activities sector; and the Accommodation and Food Service Activities sector. The last of these relates back to London’s high number of restaurants. The prior two sectors include industries such as the Accounting and Auditing industry and the Legal Activities industry, with London containing the highest regional establishment share in each of these industries.

In general, London has been one of the most severely affected regions due to its high population, the concentration of labour-intensive industries and high value-added professional industries, and also because as it was one of the first UK regions affected by the coronavirus outbreak. The city’s high population density is anticipated to have contributed to this by facilitating the spread of the virus.

The South East

The South East is situated next to London and is the most populous and second wealthiest region in the United Kingdom. The South East has a much more varied economy than other regions in the United Kingdom and has a lower reliance on the public sector. Information technology (IT), engineering and healthcare industries are especially prominent in the region.

As of 31 August 2020, the South East accounted for 14.1% of all employments furloughed through the CJRS as of 31 August 2020. This is the second most of any region in the United Kingdom but is along with expected trends. As the second most affluent UK region, the South East also contains many part-time employees in hospitality industries. However, unlike London, the region also contains a much larger proportion of manufacturing and engineering activities.

The Motor Vehicle Manufacturing industry is particularly prominent in the region, with 17.1% of the industry’s establishments located in the South East, the highest of any UK region. Social distancing measures introduced following the coronavirus outbreak all but decimated demand for new vehicles as much travel across the United Kingdom was halted. Only 4,321 cars were registered in April 2020, a record low, according to the Society of Motor Manufacturers and Traders. This contributed to a large number of vehicle manufacturers furloughing employees.

The South East has accounted for the second-largest share of loans provided through the CBILS and BBLS, accounting for 15.5% and 13.8% of all loans provided through each scheme respectively, to the tune of approximately £7.4 billion. The Motor Vehicle Manufacturing industry has been one of the largest recipients, after the construction sector, for loans provided by these two loan schemes and partly explains the large amount of loans provided to businesses in the South East.

The region also contains a large number of businesses in the Professional, Scientific and Technical Activities sector, which benefited significantly from government loan schemes. As a leader in aerospace, the Satellite Telecommunications Activities industry and the Consulting Engineering Services industry both have a significant presence in the region, which contains 22.9% and 15.5% of these industries’ establishments respectively, the highest of any UK region.

The South East has been one of the regions most heavily affected by the pandemic for much the same reasons as London, although through slightly different channels due to its specialisation in different sectors. However, its slightly less urbanised residential profile supported a degree of resilience to the spread of the coronavirus compared with London, which help to limit the pandemic’s effect on the economy to an extent.

The North West

The North West has also been heavily affected by the coronavirus pandemic. The region has a historic connection to manufacturing and specialises in the production of chemicals, textiles, pharmaceuticals and technology. It contains the major cities of Liverpool and Manchester, both of which are urban centres of trade and production. The North West’s reliance on manufacturing, which has been one of the sectors most severely affected by the coronavirus pandemic, has made its economy particularly vulnerable. Additionally, heavy local restrictions in the area prior to the second England lockdown are expected to have been particularly damaging to the North West’s economy.

The North West accounted for 10.3% of all employments furloughed through the CJRS as of 31 August 2020. Although the region does not have as many businesses in the Accommodation and Food Service Activities sector as either London or the South East, its high furlough level can be explained by its much higher proportion of manufacturing and vehicle-related industries, such as the Other Motor Vehicles Sales industry and the Tyre and Rubber Recycling industry, both of which are auxiliary industries to motor vehicle manufacturing. The North West contains the highest regional establishment share in each industry, with 11.9% and 13.2% respectively. These industries were negatively affected by reduced demand following the coronavirus outbreak of due to falling vehicle sales.

The North West has also benefited greatly from the CBILS and the BBLS, receiving approximately £5.5 billion. The region accounted for 10.8% and 10.4% of total lending provided by each scheme respectively. The high level of lending to the region can be explained by its manufacturing presence, including basic chemical manufacturing in Lancashire and Cheshire. This includes both organic and inorganic chemical manufacturing. The North West contains the highest number of establishments in each of these industries, with 31.8% and 20.6% of the total respectively. However, the total borrowed in the North West is approximately half of that received by London and two-thirds of that received by the South East.

The region also has a strong connection to textile manufacturing and is the centre of operation for the Household Textile and Soft Furnishing Manufacturing industry and Workwear Manufacturing industry, containing 14% and 14.5% of these industries’ establishments respectively.

Conclusion

As determined by the level of support received by each UK region, London, the South East and the North West have been the most heavily affected by the coronavirus pandemic. The regions all have strong presences in sectors that cannot transition employees to working from home and that have been disproportionality affected by the coronavirus outbreak. This includes the retail, hospitality and manufacturing sectors.

The second wave of the coronavirus and the consequent second lockdown in England, which started on 2 November 2020, may cause new regions to be disproportionally affected by the virus. According to official data from the UK government, Yorkshire and The Humber, the North East and the North West had the highest number of coronavirus cases per 100,000 people as of 10 November. Therefore, these regions may be the most heavily affected from an economic standpoint over the coming months.

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