Growth spurt forecast but North-South gap to widen

Accountancy giant PwC expects the Yorkshire economy to expand by 2.5 per cent this year, up from 1.6 per cent in 2013.

But the UK economy as a whole is expected to grow by 2.6 per cent, with the South East expanding by three per cent and London by 3.1 per cent.

PwC’s report also highlights the ongoing impact on living standards despite a recent slowdown in the headline rate of inflation.

It suggests that household incomes in real terms remain seven per cent below their peak in 2007.

And while incomes are expected to recover gradually from 2015, it will be 2019 before they are back above pre-crisis levels after adjusting for inflation.

Analysis of the impact of rising prices since 2003 shows the poorest 10 per cent of households have seen price inflation of 40 per cent compared with 32 per cent for the richest – equivalent to an extra £1,000 hit on the poorest families per year.

Average wages will not recover in real terms until 2020, the report says.

Ian Morrison, Yorkshire and North East regional leader for PwC, said: “The sharp decline in real wages reflects a number of factors, including falling productivity, January 2011’s VAT increase and rising import prices, although these effects are now starting to fade as the pound has risen and inflation has returned to target.

“Real household incomes should therefore gradually begin to recover, helped by strong employment growth and continued real increases in the basic state pension.

“Poorer households have suffered from higher effective inflation rates on average over the past decade, due in particular to rising food and energy prices, which represent a relatively high percentage of their budgets.”

The report forecasts interest rates will not go up until next year but will then rise to around four per cent by 2020.