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The worst is yet to come

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After 15 years of renaissance, our cities are facing their first recession in a generation.

Rather than a neat divide between the north and south of England, the impact is likely to be sectoral rather than regional.

Six months ago, the chancellor’s budget included a very optimistic growth forecast for next year, of up to 2.75%. Now, Bank of England governor Mervyn King tells us we are entering a “sharp and prolonged slowdown”.

The economy shrank by 0.5% in the three months to September the first decline in output since 1992. The City is set to lose more than 50,000 jobs by the end of 2009. Thousands of private sector house-building jobs have already been cut, as completions this year are set to reach just half of last year’s 160,000. Output is also falling across the private sector, especially in the hotel and restaurant sector.

The government has responded with plans to bring forward some capital investment, to accelerate social housing new build and prop up construction jobs. Other government-sponsored construction projects including Crossrail and the Olympics will help safeguard jobs in London.

But cities cannot all pin their hopes on a Keynesian cash injection . Unemployment will still exceed two million by the New Year. And in the medium term, the 2009 spending review will be extremely tight.

So how will the recession impact on specific cities? Some say that the south will be hit harder than the north, because cities like Reading have further to fall. Others think the north will bear the brunt again because cities like Sunderland are less well-placed to survive a downturn.

But it won’t be as simple as that. CBI chief Richard Lambert said recently that the recession will be more sectoral than regional. And he’s right. There won’t be a clear-cut north/south impact. Cities with a high proportion of public sector jobs might be cushioned in the short term, but could be hit later. Meanwhile, those with a large financial services sector are also being hit hard but differently.

Edinburgh is heavily exposed to the financial crisis, via HBOS and RBS, and will see major restructuring and significant job losses. But its financial and business service sector is large and diverse, and not just confined to banking. Over the longer term, the city should retain its position as a financial HQ, but with fewer employees.

Sunderland has attracted thousands of financial service jobs, mainly in call centres and back offices. Many of these are now being cut, most recently at Northern Rock’s Sunderland call centre. This trend will continue, as the financial services industry consolidates into fewer, larger companies. Back-office Britain is set to contract severely.

So far, I’m not convinced that cities have realised the full extent of the recession. Cities like Edinburgh, Sunderland and Reading need to make a realistic assessment of their vulnerability to job losses. It’s not all doom and gloom, but no city will survive intact.

Looking ahead, we should all be cautious about the government’s promise of new ‘green collar’ jobs. Renewable energy will generate new employment opportunities, but not as many as the government is suggesting. We should also be careful about celebrating the exodus of Accession Eight migrants. This might please immigration minister Phil Woolas now, but it could be hard for employers to fill vacancies in an upturn unless action is taken now to up-skill indigenous workers.

The drama of the credit crunch is now being replaced by the real-life recession which will be widespread, and difficult. Our cities will bear the brunt of it, but they will also lead us out of it.

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