Economy: Diversity mitigates effect of recession

The diverse economy of Leeds - which was known in Victorian times as "the city of a thousand trades" - and its neighbours has offered some respite from the recession.

While financial services dominate the modern city of Leeds, York offers chocolate and tourism, Harrogate conferences, Huddersfield engineering and Barnsley and Wakefield have become logistics hubs.

The textile trade gave birth to a thriving call centre network, as tailors started savings clubs. Ventura, which is continuing to expand, sprang from the industry while Burton's operation was bought by GE Money and remains based in Morley.

Leeds has become the engine room of the region's economy over the past 20 years, accounting for a third of the 1.3m jobs in 2007. It also produced a similar proportion of its £50bn ($76bn) gross value added.

Yet output growth, at 27 per cent from 1997-2007, lagged behind Yorkshire as a whole by two percentage points, according to a report by the city region secretariat.

function openpop(url){pop=window.open(url,"INFORMATION_BOX","toolbar=0,location=0,directories=0,status=0,menubar=0,scrollbars=1,resizable=1,width=990,height=680");}

Unemployment has soared in the recession, with the number claiming benefit rising from a low of 38,963, or 2.1 per cent, in November 2007 to 86,235, or 4.7 per cent this January. The number of vacancies has shrunk by a third.

Forecasts suggest that unemployment should stop rising in 2011, but it may not be until 2026 that employment returns to pre-recession levels. However, retirements will create some job opportunities.

Howard Kew, chief executive of Financial Leeds, which promotes the financial services sector, says it remains sustainable. "We have a very solid base here that is providing a service to the economy as a whole. The banks provide retail and commercial banking, and mortgages - not the investment bank trading that brought many of them down."

About 242,000 people work in financial and professional services including banking, with more than 10,000 of those in the legal sector. The challenge now is to find new sources of jobs growth. Retail - already the biggest employer with 17 per cent of the workforce - and health are expected to be recruiting most.

The city region's reliance on business services and financial services is notable. They added an additional £5.5bn to the economy between 1997-2007, almost 60 per cent of its total growth. Banking and insurance output grew by 106 per cent over the period, outpacing the UK average of 81 per cent. Manufacturing GVA declined by 4.7 per cent in that time, compared with 4 per cent growth across the UK as a whole. Digital and creative industries, which account for 6 per cent of GDP across Yorkshire, are one source of expansion.

Over the past 18 months Gratterpalm, a marketing agency, has increased turnover 12 per cent and staff numbers by 10 per cent. It has won business including TV commercials from Umbro, Arla, Pets at Home and Greggs through its innovative approach.

However, retail and commercial banking faces a skills shortage, according to a report commissioned by Financial Leeds.

Its author, Damian Ward of Bradford University School of Management, says the banks need to work together to improve staff training across the sector, rather than poaching from each other. He says the number of customer service and retail banking jobs has cushioned it.

Funding growth will be difficult, as banks struggle to build up their capital bases.

Jo Haigh, who runs a consultancy and is a non-executive director, says: "The banks are not lending, whatever they say. Owner-managers have remortgaged houses, borrowed on credit cards and plundered their pensions and they cannot hold on for much longer."

However, restructuring experts say that banks have kept alive more companies than expected.

Graham Wild, of Zolfo Cooper, the restructuring specialists, says: "Banks have been more tolerant, resetting covenants. There are not many alternatives. At this moment, as long as [borrowers] can service loans, [the banks] are prepared to keep companies going." But if interest rates rise and companies cannot service their debt, things could deteriorate rapidly, he says.

Looking ahead, Iain Moffat, senior partner of KPMG in Leeds, says: "We must place some long-term bets on what the greatest growth opportunities will be, and create the framework to encourage investment in those areas."

Mark Vines, regional commercial director of HSBC bank, says companies must look abroad. "There has never been a better time to export to Brics [Brazil, Russia, India and China]. For Leeds, with its strong manufacturing base, this could be an ideal opportunity to venture into international trade," he says.

© The Financial Times Limited 2010. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation