A new economic report has highlighted the significant challenges for the economies of Newcastle and Sunderland with both cities set to produce relatively slow growth over the next 12 months.

The UK Powerhouse study, which has been produced by Irwin Mitchell and the Centre for Economics & Business Research (Cebr), analyses 50 of the largest local economies by employment and GVA* growth.

In the latest report, Newcastle is expected to see the size of its economy grow 2.4% by the end of 2022, which is a full percentage point behind hotspots in the South including Reading, Oxford, Cambridge and Milton Keynes.

Sunderland’s rate of growth, which is predicted to be just 2.2% next year, takes it into the bottom 10. Even more worrying for Sunderland is that it is ranked bottom for employment growth with the prediction that headcount will fall on -0.4%.

In Newcastle the number of people who have jobs is expected to increase by 1.3% next year however once again they are far lower than the locations in the South. UK Powerhouse also reveals the Newcastle and Sunderland are falling behind other large cities in the North including Manchester and Leeds.

Hannah Clipston, partner at Irwin Mitchell, said: “The UK’s economy has undergone significant change over the last two years and this report highlights that the recovery is unlikely to be linear or even uniform.

“Over the next 12 months our report predicts that manufacturing’s output will grow by 3.5% whilst for hospitality it will grow by 35%. This has a huge impact on the variations that we are seeing in terms of growth in different locations and should be considered by the government as it looks to level up and tackle the north-south divide.”

Irwin Mitchell’s report also examines to what extent disruption in the economy leads to innovation.

Here the study reveals that the South West and the South East have the largest share of businesses engaged in innovative activity. According to the study, 41% of businesses in the South West are defined as innovative compared to 34% in the North East.

Hannah added: “Businesses have been incredibly resilient over the last couple of years and have faced many disruptors including Covid, labour shortages, supply chain issues and high fuel costs.

“Our latest study recommends that irrespective of the sector they’re in, organisations should be adopting technology more quickly and adapting to the UK’s new status after Brexit.

“All of this will require a shift in approach and for innovation to be celebrated and nurtured more than it is currently. It’s vital that businesses are encouraged to follow this path and receive the right level of support in order to help them succeed.”

About the report

Official economic data sources for the UK’s cities are often dated and fail to provide a reliable snapshot of the UK’s localised economies. The last set of regional economic accounts corresponds to 2019.

To more accurately estimate current economic activity, Cebr has used a range of timely indicators to create a nowcast of gross value added (GVA) and employment indicators for the 50 locations in the UK with the largest GVA. Cebr also models the economies of these cities in order to produce a forecast of their performance a year ahead.

The analysis of this data gives us a picture of how the UK’s regional economies performed in Q4 2021 and how they’re expected to perform in Q4 2022.