Slow recovery ahead, says bank economist

Warning the region is over-reliant on public sector work, Mr Vosa said looming job cuts in areas such as education, health and social work are likely to prove a drag on Yorkshire's recovery.

As a result, he expects Yorkshire to continue to underperform the UK, he said.

Mr Vosa's comments follow a report from the Centre for Cities thinktank which said Yorkshire needs 69,500 new jobs to bring the region in line with the national average.

Yorkshire's employment rate stands at 56.8 per cent, compared with 58.1 for the UK. The region's unemployment rate stands at over 10 per cent, against about eight per cent for the UK.

"Employment growth in Yorkshire has fallen sharper than the UK average," said Mr Vosa. "The labour market is smaller and there are fewer people employed.

"That's going to be the big constraint on consumer spend, even before you talk about VAT increases."

The public sector share of employment is just over 30 per cent in Yorkshire, compared with 28 per cent for the UK.

"Is the private sector strong enough to take up the slack?" asked Mr Vosa. "We don't think it will be this year and therefore unemployment will increase through the region. Our story is underperformance this year and next. Although we will have a recovery, it will largely be a jobless recovery."

The Yorkshire economy suffered a setback in the first quarter of the year, as productivity was hampered by bad weather.

Compared with the 0.3 per cent growth seen nationally, Yorkshire's economy grew by around 0.2 per cent in the first quarter.

Despite the low value of sterling against the euro, manufacturing in Yorkshire failed to significantly boost the region's growth. Mr Vosa

said this was a "bit of a puzzle", perhaps explained by the slightly lower level of trade the region does with the Euro-zone, compared with the rest of the UK.

He added the lower-than-expected contribution from manufacturing could also be explained by firms importing stockpiles of components ahead of a manufacturing surge.

"It looks as though people are gearing up for manufacturing exporting growth," said Mr Vosa, who is head of market economics for Europe at Yorkshire Bank owner National Australia Bank.

"We expect much better export performance (in coming months). Yorkshire should disproportionately benefit as manufacturing is a bigger share."

However, the service sector held up much better, reflecting the region's bias towards financial services in and around Leeds. Mr Vosa said the catering, distribution and hotels sector has significant potential for outperformance in Yorkshire, and combined are worth about the same to the region as manufacturing.

Tourism has been doing well in the region, he added, thanks to the "staycation" trend of holidaying domestically and more foreign tourists attracted by the exchange rate.

Earlier this year, tourist board Welcome to Yorkshire launched a multi-million-pound campaign celebrating the region's heritage and talent. The campaign included a garden at the Chelsea Flower Show and an 18-week sponsorship of the hit quiz show Who Wants to Be a Millionaire? The campaign, part of a 4m programme of events, also includes 10 Welcome to Yorkshire-branded trains travelling to regions including Greater Manchester, Lancashire and Cumbria.

Mr Vosa said despite a slow crawl out of recession, the region's businesses are beginning to invest in capacity and expansion.

"People are becoming much more upbeat," he said. "The worst is definitely behind us but the recovery will be slow."

REPORT OUTLINES EMPLOYMENT GAP

A report released yesterday by the Centre for Cities thinktank said the jobs deficit in Yorkshire needs 69,500 new jobs to bring the region in line with the national average.

Among the hardest hit are Sheffield and Hull, which have a combined deficit of almost 40,000 jobs.

However, the report said Wakefield and York have attracted new business and achieved employment rates higher than the national average. The report said the UK's national jobs deficit stands at more than 600,000.

"A number of our region's cities know they have a long-standing problem with employment," said Nick Pontone, policy director at the Yorkshire and Humber Chamber of Commerce. "They must be supported to kickstart private sector growth, not abandoned as the report implies."