Adam Marshall, Head of Policy, Centre for Cities

Over the years, many a writer has resorted to the saying 'may you live in interesting times'. The phrase is deliberately uncertain – reflecting opportunity to some, and danger to others.

Cliché or not, the phrase aptly describes the economic and political challenges now facing city leaders across the United Kingdom. Fast-changing global economic conditions, together with a deep national recession and a highly polarised political environment, have left councils grappling with a nagging feeling of uncertainty that is unfamiliar after a decade of steady economic growth and regeneration.

The challenges now facing Britain's city leaders are four-fold.

First, uncertainty over council grants. During the good years, councils fought for greater certainty – with three year settlements replacing annual negotiation from 2007/08. Worsening economic conditions have brought complaints from councils – who want more money in tougher times – and from the hawk-eyed Treasury, which is scouring the accounts for potential savings. As the local government settlement comes up for renewal in 2010, councils can be certain of less favourable settlements and ever stricter efficiency requirements.

Second, uncertainty over property and interest income. Cities grew used to ever rising property prices, which allowed them to make money from their own holdings and to share in the proceeds of regeneration through planning agreements. At the same time, they enjoyed substantial interest income on their financial reserves. Now – with property development at a standstill and interest rates at record lows – it may be a long time before these key sources of income recover.

Third, the government has already signalled a freeze on growth of capital expenditure – and the private sector has yet to return to the market. For the foreseeable future, cities seeking to finance better transport links, new schools and new housing development will face an increasingly difficult fiscal environment.

Finally, cities must contend with lack of local flexibility in the face of recession. Frustrated city leaders across the country tell us that they need greater control over local budgets in order to tackle unemployment, re-skill workers and promote recovery.

Local leaders could respond to these challenges by simply throwing up their hands. Yet there are some important opportunities in all this gloom. Most importantly, cities have an opportunity to revisit existing economic strategies. The UK economy is undergoing permanent and profound adjustments – meaning that cities' assumptions on future growth and jobs will need to change. City leaders also have an opportunity to re-prioritise their investment 'asks' and make the strongest possible case for a small number of projects that can support recovery and jobs.

At the same time, city leaders should continue to press the government and the Conservatives to make good on their promises of greater devolution. A 'single budget' and more local control over transport, training, and local taxation would give Britain's cities more flexibility to deal with future economic shocks, beginning with Manchester and Leeds, the two forerunner city regions announced in the 2009 budget.