Modern Britain: The North-North divide

Economists say that raising interest rates favours the South. But splitting the country at Watford no longer works

The North-South divide is so stubborn a pattern in the British economy that it seems to have become a geographical feature snaking across the Midlands. The boom and bust that has afflicted the UK for so long has turned into a geographical phenomenon, with boom to the south and bust to the north.

The North-South divide is so stubborn a pattern in the British economy that it seems to have become a geographical feature snaking across the Midlands. The boom and bust that has afflicted the UK for so long has turned into a geographical phenomenon, with boom to the south and bust to the north.

In the south, rippling out from London, surging house prices, more or less full employment, strong growth and signs of inflationary pressure. In the north, whole terraces of houses without buyers, significant pockets of joblessness, manufacturing industry hobbled by a strong pound and no sign of rising prices.

Employers and unions in manufacturing have become the main voice for the grievances of the north. Last week, ahead of the monthly meeting of the Bank's Monetary Policy Committee, 20 trade associations representing 10,000 companies, sent Eddie George, the governor, an unprecedented letter pleading with the Bank not to raise interest rates.

This time their plea was heeded. But it is a safe assumption that regional balance did not enter the MPC's calculations. It sets interest rates by looking at national averages for unemployment and inflation. Mr George, indeed, caused a furore in the North-east last year by uttering words interpreted to mean that the area must pay the price in jobs for cooling a southern house price boom.

However, to portray the Bank's dilemma, as to whether or not to raise rates each month, as a sacrifice of weak North to over-weening South is a caricature. The economy of the north of England is far more complex. For one thing, the South, notably London, has some of the worst pockets of poverty and unemployment. Hartlepool has an unemployment rate close to 12 per cent but Haringey's is 16 per cent. Manchester, Sheffield, Leeds, Newcastle and Middlesbrough have prosperous suburbs where people in the professions and, more recently, financial services, enjoy a quality of life often superior to their southern England counterparts.

According to The State of Working Britain, a book edited by Paul Gregg of the Treasury's Council of Economic Advisers, regional unemployment rates are the closest in decades.

Nor is it true that the North is suffering because the strong pound is hammering manufacturing. The difference is, the North relies so much more on public sector employment.

The point was made by a survey last week from the Engineering Employers' Federation. It found there was a North-South divide in the industry, and the southern firms were dealing better with the exchange rate because they produced "higher value-added" products, machinery with design and quality overriding price.

The survey stresses that the pervasive North-South divide will not be healed by adjusting interest rates. Rather than simply bashing the MPC, industry should ask what makes some regions more successful than others.

The 19th-century North-South divide was one born of the industrial success of the north, but which gave rise to terrible social problems. But Sheffield and Liverpool would not have looked to the Bank of England and Whitehall for an easy solution to their problems then; and nor should they now.