One in 10 northerners 'will be jobless in next 5 years'

Unemployment is set to breach the psychologically important 10 per cent level over the next five years – but only in the north of the country, a leading economics think-tank warns today.

A combination of public-sector spending cuts, sluggish private-sector growth and slowing demand for British exports if the global recovery also falters will further ingrain the existing geographical disparities in wealth, according to the Centre for Economic and Business Research (CEBR).

The North-east, the North-west, Yorkshire and the Humber, the West Midlands and Wales will all see their shares of Britain's economic output falling over the next five years, with a concomitant effect on employment, the CEBR predicts. Meanwhile, London, the South-east and the South-west will suck in an even larger share of the economy. In London, where financial and business services account for more than 30 per cent of the economy, the share of total national economic activity will shoot up to nearly 20 per cent, compared with 16.3 per cent in 1995.

The CEBR'S estimates cast doubt on calls made by both the previous Labour government and the Conservative-Liberal Democrat Coalition for a "rebalancing" of the economy away from a reliance on finance and the City.

The recession is already hitting manufacturing centres harder than other areas, with unemployment in the West Midlands, in particular, soaring during the worst of last year's crisis. Although industrial output has improved strongly this year, thanks to restocking of inventories and the weakness of the pound, it is still far below what it was before the recession. The fragile recovery is threatened by the prospect of a double-dip recession in the UK or its main European markets. But the Government's planned public spending cuts – which the Office for Budget Responsibility has admitted could cost more than 600,000 jobs – can be sustained only if redundancies are absorbed by growth in the private sector.

"Bankrolling public-sector employment in the North through the tax base in the South is clearly not going to be possible over the near future," said Douglas McWilliams, the chief executive of the CEBR. "It will take some time for the private sector to adjust and fill the vacuum left once the public-sector cuts are felt. This is likely to be an agonising transition."

The CEBR's gloomy outlook coincides with data suggesting that British consumer confidence rose last month for the first time since February. In a survery by GfK NOP, overall confidence rose by four points as respondents reported greater certainty about both their personal financial situations and in the economy generally.

But behind the headline figure, the picture was more nuanced. The sudden surge of optimism only reversed a sharp fall in July, and took confidence levels back to about where they were in the depths of recession in May 2009.

Consumers' appetite for making major purchases dropped by four points, suggesting that shoppers were not willing to bet on an improving outlook. An index of economic sentiment across Europe, published yesterday, showed a similar trajectory. Although the index for August was at a 29-month high, with consumer confidence at its highest for 31 months, willingness to make major purchases remained stubbornly low.