Regions to benefit from transforming UK economy as power shifts from London

The post-Covid recovery and impact of Brexit will transform economic growth in areas across the UK as London’s influence wanes, according to a leading asset manager.

Although analysis by Aegon Asset Management suggests London’s role in powering the UK economy will diminish, the “silver lining” will be that growth will be channelled towards other cities.

Martha Peyton, Aegon’s managing director and head of global applied research, also said the recovery should initially revive activity in sectors most adversely affected by the pandemic, such as hospitality, and in the longer term there should be a boost to higher-skill jobs.

Ms Peyton said the changes emerging from the Brexit/Covid-19 “maelstrom” offer potentially attractive investment opportunities, supported by the fact the UK benefits from strong relative labour force demographics.

Aegon has around 2,000 employees at its UK headquarters at The Gyle in Edinburgh. Picture: Greg Macvean.

“The UK’s stronger growth prospects involve the long-term structural advantages of the UK including its relatively strong pace of population growth and labour force growth versus the Euro-area average and versus Germany and France individually,” she said.

Ms Peyton also highlighted forecasts for the proportion of employment requiring highly educated workers, known as “knowledge-intense business services”. In London, the proportion of such jobs declined 0.64 per cent between 2016 and 2019.

“Much of this can be traced to the uncertainty of Brexit. As London grapples with its diminished role in global finance and associated uncertainty, its power to attract and hold onto a highly educated workforce has weakened. But its weaker attractiveness to such workers has implicitly improved the relative attractiveness of locations outside of London.”

She said the shift should also benefit business start-up rates across the UK.

“Increasing prevalence of highly educated workers enhances the potential for economic growth in the cities enjoying gains. By selecting among UK cities, highly educated individuals are expressing their personal assessment of opportunity. As cities achieve concentrations of the highly educated, investors might be well-advised to take notice.”

Expansion

Aegon’s UK arm, which is based in Edinburgh, recently reported that it had seen assets under administration top £200 billion for the first time, as it continues to increase scale in the pension and savings market.

The firm said the growth reflected strong markets and a number of ongoing investments in the business.

News of the assets milestone came as the Dutch-owned group released second-quarter results revealing an operating profit of £38 million at its UK business, up 16 per cent from a year earlier.

Higher fee revenues from the growth of the group’s platform business and favourable equity markets, along with lower expenses, more than offset the impacts from the loss of earnings due to the sale of the Stonebridge business and a gradual run-off of the traditional product portfolio, Aegon noted.

The latest results showed that net deposits amounted to £1.5bn, down from some £2bn in the second quarter of 2020. Net deposits in the firm’s workplace pensions business amounted to £1.1bn, almost doubling up on the figure recorded in the same period a year earlier. Net deposits for the institutional business fell to £879m from £1.5bn in the same period last year.

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