Britain’s pandemic recovery has reduced employment and house price gaps, but left outer London behind

The Covid-19 pandemic and its aftermath has slightly reduced employment and house price gaps across Britain, but hasn’t reduced wider economic divides, while ethnically diverse areas of outer London are at risk of falling behind, according to new Resolution Foundation research published today (Saturday).

Right where you left me – the 23^rd report for The Economy 2030 Inquiry, a collaboration with the LSE, funded by Nuffield Foundation – examines the economic legacy of the Covid-19 pandemic on different places across the UK, with a particular focus on working patterns, housing costs and consumer demand.

The report notes that the pandemic has affected different parts of the economy in very different ways, leading some to claim that its aftermath – such as the WFH revolution – would transform Britain’s economic geography.

Instead it finds that the changes that have occurred have been far less transformative, and have not helped to ‘level up’ deprived parts of the UK.

The report notes that while at a national level, unemployment has fallen to a joint 40-year low, some parts of the country – notably areas near airports and outer London – have yet to return to their pre-pandemic health. Nine of the ten local authorities that have experienced the biggest rise in unemployment are in London (the other being Luton).

Strong jobs growth in traditionally low-employment areas of the UK like the North East have helped to reduce the UK’s regional employment gap – the difference between the rate of employee jobs of the top and bottom quarter of local authorities – from 7 to 6.5.

However, with the weakest jobs growth taking place in ethnically diverse areas around London with high levels of deprivation, the pandemic has not closed employment gaps between rich and poor parts of the UK.

As well as experiencing the biggest shifts in the quantity of work, London has also been at the epicentre of the big shift towards remote working. Nationally, around one-in-five workers report that they were ‘mainly’ working from home in early 2022.

The WFH revolution has had a bigger impact on individual workers and firms than local economies though, with much of the change taking place in the same local areas.

For example, areas that are estimated to have ‘gained’ the most workers from residents working from home – such as Tower Hamlets, Islington, Manchester and Coventry – have also ‘lost’ the most workers from office staff staying at home.

The biggest net beneficiaries from the WFH revolution – areas that are estimated to have gained more resident workers than have lost office workers – have tended to be prosperous areas, such as Richmond-upon-Thames, Bromley (Kent), Rochford (Essex) and East Cambridgeshire. With these areas also gaining the most from increased consumer spending, if anything greater WFH has so far increased the gap between the most and least prosperous parts of the UK, say the report authors.

Right where you left me shows that the pandemic’s impact on the housing market may well turn out to be more lasting than its impact on the labour market.  Between February 2020 and February 2022, house prices have grown twice as fast in villages and small towns as they have in major cities (by 22 and 12 per cent respectively).

This has led to a slight closing of regional house price gaps, as areas with lower house prices (at the 25^th percentile) have seen house price growth of 19 per cent, compared to higher-priced areas (at the 90^th percentile) which have seen growth of 15 per cent.

But, with average rents for new tenancies currently growing fastest in London, some of the rebalancing of housing demand that took place during the pandemic may yet unwind over the coming months and years.

Finally, says the Foundation says that given the scale of the economic crisis unleashed by the Covid-19 pandemic, the fact that two years on there is little evidence of pandemic-scarring in parts of the UK – with the exception of areas near airports and outer London – is very encouraging.

However, the fact that it has failed to reduce some of the spatial inequalities that beset pre-pandemic – indeed the WFH revolution may have exacerbated them – suggests that the task of ‘levelling up’ the country is just as big, and even more pressing, in post-pandemic Britain.

Lalitha Try, Researcher at the Resolution Foundation, said:

“The pandemic has touched every part of Britain in many different ways. Lockdowns and the ‘race for space’ in the property market have led some to proclaim the death of the city and the revitalisation of villages.

“But as Britain finally emerges from the pandemic, the early signs are that the Covid-19 crisis has failed to scar Britain’s economic geography, but nor has it soothed the big spatial inequalities that beset pre-pandemic Britain.

“It is encouraging that strong jobs growth has reduced regional employment gaps. But with many deprived parts of outer London struggling, and the WFH revolution mainly benefitting already prosperous areas, Britain’s big economic divides are as entrenched as ever.  This makes the task of ‘levelling up’ the country all the more challenging, and all the more pressing.”