UK's economic growth masks north-south divide The fact that two important pieces of news about two of the UK's key economic regions - the Midlands and Yorkshire - went unnoticed and largely unreported is a prime example of the focus on London and the South East as the mainstay of the recent economic good news, and the lack of interest in pockets of good news among the regional gloom. When, last Tuesday, the International Monetary Fund upgraded its view on the state of the UK economy, predicting a 1.4pc growth rate this year, the analysis which followed was largely London-centric. "Recent data have shown welcome signs of an improving economy, consistent with increasing consumer and business confidence," said the IMF in its World Economic Outlook. Chief economist Olivier Blanchard pronounced himself "pleasantly surprised" by the UK's performance. The boost to the housing market from Help to Buy and increased consumer spending were seen as two key indicators behind the upgrade. The only fly in the ointment was the Royal Bank of Scotland whose recovery, the IMF said, is "crucial for credit growth." So what then of the north-south divide? A mere myth, or alive and kicking? A new study of businesses in London by the CBI and accountants KPMG found that the majority feel optimistic about the economy and business prospects. The quarterly survey, of 144 businesses in the capital, found that optimism is now at its highest level since the end of 2010. More than two-thirds of those questioned said they had plans to expand over the next year. When asked what their comparative surveys said about the north of England or the Midlands, or indeed other regions, a CBI spokesman admitted that similar studies did not exist. But perhaps such a focus is with good reason. In its latest UK Cities & Regions Outlook, Richard Holt, of Capital Economics, argues that London will lead UK economic growth between now and the end of the decade. He forecasts 3pc London GDP growth this year after an estimated 1.8pc in 2012, rising to 4.4pc a year in the second half of the decade. Taking as evidence something as basic as shop vacancy statistics, the reasoning behind Holt's analysis would seem valid. According to numbers from the Local Data Company, 21 of the 25 worst-performing retail centres are in the North, the Midlands or Wales, with 22 of the 25 best performing south of the Watford Gap. In the worst examples, in Lancashire, the vacancy rate in the seaside towns of Morecambe and Blackpool stood at 37.1p and 29.9pc respectively. Similarly, recent unemployment figures show that in the North East the number of people without jobs is rising, bucking the national trend. Unemployment in the region is the highest in the UK, rising slightly to 10.4pc in August, while nationally the unemployment rate fell to 7.7pc. Data from the EY Item Club's latest report shows that the divide exists even when the numbers are positive. The Item Club's house price index shows that London homes will increase in value by 7pc year-on-year, followed interestingly by Wales, at just under 4pc. But the North West, Yorkshire, and the North East, will all see price growth of around just 1pc. Numbers from high-end estate agents Savills back up such regional disparities. The firm said in the late summer that it expects UK house price growth to average 18.1pc by the end of 2017, compared with the 11.5pc anticipated when its forecasts were originally published in November 2012. However, it stressed regional variations will fluctuate from 25.1pc for prime central London to 12.5pc for the North East. "At a national level an improvement in new buyer inquiries and mortgage approvals, together with the anticipated impact of Help to Buy, has caused us to increase our UK forecast," said Lucian Cook, director of Savills residential research. Interestingly, when it comes to planning application approvals - a constant source of aggravation for the construction industry - London is also streets ahead. Data from Knight Frank show that outline planning applications for housing developments of 50 or more nationally were up 31pc between May and August this year compared with a year earlier - but this figure stood at 151pc within the capital. Despite the apparent evidence to the contrary, Mark Carney, Governor of the Bank of England, said recently that "across the UK, the recovery is broadening" into different sectors and regions. But not everyone is convinced. Stewart Cowley, investment director of fixed income and macro strategy at Old Mutual Global Investors, believes there is a political dimension to the divide which suits the prevailing status quo. The economic split between London and the rest of the country has an important electoral dimension. If you overlay the areas where people are paying the highest mortgages compared to their income and the electoral boundaries you find that, outside of London, the people most sensitive to interest rate movements are in Conservative strongholds," he argues. Increasing interest rates should be a symbol of economic success. But if it is done before real incomes have begun to recover, money will drain out of bank accounts which won't be a vote winner, even though it isn't in the control of George Osborne and the Treasury. But there are some green shoots. John Allan, national chairman of the Federation of Small Businesses, points to the organisation's own research which showed that confidence among the UK's small business community reached a three-year peak in the last quarter. "Just as encouraging was the news that confidence among our SMEs extended beyond London and the South East, and was spread evenly through the country," says Allan. Although small firms may be confident, in reality, most economists agree that it is medium and large-sized employers who need to increase confidence levels before a shift can really be seen. Despite good news in certain areas - and an improving trend in regions such as Birmingham, thanks to its focus on the returning financial services sector - the overall picture of UK economic growth continues to mask severe disparities across the regions, disparities which will only be closed by targeted policies and a real rebound across all sectors of the economy.