How will the UK be performing by the end of 2022? Irwin Mitchell’s latest UK Powerhouse report looks at just that, through the lens of 50 large towns and cities.
For starters, the recovery is unlikely to be linear or uniform. The UK’s economy has undergone significant change over the last two years, and how different sectors perform will have a varying impact across the country – depending on their prevalence. Our report, for example, predicts that hospitality’s output will grow ten times faster than manufacturing’s in 2022. As the government looks to level up and tackle the north-south divide, those differences need to be considered.
Rise to the skills shortages challenge
How firms react to the shortage of skills will be another major factor affecting growth potential. Although terms such as the ‘Great Resignation’ point to the huge numbers of people leaving their jobs, it’s worth pointing out that many of these people will be looking for new jobs and the shift to hybrid working offers opportunities.
Businesses now have the opportunity to attract people and skills to their organisation that previously they may not have been able to. And although the current shortage of labour is causing issues, it has the potential to tackle economic disparities in the future.
Take advantage of changing international relationships
So the trajectory of the economy remains uncertain, but there a number of considerations for businesses to help them flourish.
The first refers to Brexit. With the UK’s exit from the European single market contributing to supply shortages in multiple sectors, as well as undermining London’s status as a global financial centre, it’s imperative that the affected sectors and businesses adapt to this new arrangement.
Though not as extensive and abrupt as the pandemic, the effect of Brexit cannot be discounted. The retail and manufacturing sectors – especially businesses with a huge exposure to the EU – have to look inwards for supply and tap into both established and emerging markets beyond the EU to become profitable.
Nonetheless, leaving the single market has created new opportunities. From a supply perspective, leaving the EU has opened up opportunities for British manufacturers to grow their share in the domestic market.
Moreover, with the UK still holding its global comparative advantage as compared to the rest of the world, sectors including the financial and insurance activities sector can look beyond the EU to provide exports and services to still stay relevant and profitable.
The Commonwealth is becoming an increasingly attractive trading network with Free Trade Agreements being negotiated and agreed with the likes of Canada, Singapore, Australia, New Zealand and India to name just a few. Businesses should be exploring the opportunities those new agreements present.
The introduction of Freeports should further contribute to economic growth in areas such as the Solent as well as drive an increase in inward investment and employment as eligible businesses will enjoy a range of tax incentives, such as enhanced capital allowances, relief from stamp duty and employer national insurance contributions for additional employees.
Adopt technology and collaborate
Digitally capable business have already seen how comprehensive technology adoption can lead to competitive advantages. But the rest of the field lags fairly behind, adopting only the basics such as collaboration tools, cloud-based servers, and online customer interaction services.
The lockdowns caused by the pandemic exposed a large proportion of these businesses, and showed how hard it can be to adapt to changing consumer behaviours without more advanced digital capabilities.
Many of these new behaviours are set to linger, it’s imperative for sectors and businesses to effectively integrate digital tools into their fold so as to stay relevant to a growing proportion of digital natives in the population.
Innovation is a key theme running through the report and the idea of investing in technology forms part of the report’s conclusion which is written by Vanessa O'Donnell, Senior Policy Adviser at the CBI.
Prioritising investment, collaboration on innovation, and the power of learning from others are three important recommendations. It’s why initiatives such as the CBI’s ‘Big fish, little fish’ are so useful. But as Vanessa says, the government must also do more to support the trend towards digitalisation to drive a more productive and levelled-up economy, with a high-wage, high-skill workforce.
Innovation can not only aid economic growth, it has the power to tackle the levelling up agenda. There are already huge regional differences in the proportion of businesses that are engaged in innovative activity, and if we get it right, we can become more prosperous and the current gaps in regional output and employment levels can start to be closed.
All of this will require a shift in approach and for innovation to be better celebrated and nurtured. It’s vital that businesses are encouraged to follow this path and receive the right level of support in order to help them succeed.
For more insight from into the year ahead from Irwin Mitchell, read the full UK Powerhouse report.