EY forecasts widening economic gap between UK regions

Big four accountancy firm, EY, has forecast a return to steady economic growth through 2024 to 2027, but expects the gap between UK regions and London and the South East to widen.

In the February EY UK Regional Economic Forecast, the UK overall is expected to see annual average growth of 1.9% between 2024 and 2027, supported by lower inflation and falls in unemployment. Despite this, while the regional economies of London and the South East are forecast to exceed this rate of growth, every other region is expected to see economic growth below or equal to the national average and further exacerbate the gap between the capital and the rest of the UK.

EY’s analysis also outlines that the best performing sectors of the economy, including technology and professional services, are concentrated in locations seeing higher levels of growth, and contributed to the growing regional economic divides. For example, the North East, where professional services and IT account for fewer than one in 10 jobs, is expected to see the slowest growth in England (1.5%) compared to London where they make up almost a quarter of employment opportunities.

Rohan Malik, EY UK&I Managing Partner for Government & Infrastructure, commented:

“While the UK’s prolonged period of economic stagnation should come to an end this year as all regions return to growth, the benefits will not be felt equally across all parts of the country. The UK’s longstanding geographic inequalities means that many of the country’s high-growth sectors have coalesced around a select few locations, and these areas will reap the biggest rewards as the country returns to prosperity in the coming years.“

Cities with more jobs in high growth sectors are also expected to outperform their surrounding regions, and the UK economy as a whole. Reading (2.5% GVA growth), Manchester (2.2%) and Bristol (2.2%) are forecast to be the fastest growing cities outside Greater London between 2024 and 2027, according to EY.

Rohan Malik continued:

“Nurturing high value sectors can boost resilience in tough times and accelerate growth in better years, but doing so requires regions to build their own tailored growth plans that consider which industries are set to flourish and how to cultivate them locally. High value sectors will require a high value workforce, so building in-demand skillsets and competencies with latest technology should help a region attract investment while bolstering the local economy. For example, Generative AI has the potential to enhance regional and UK productivity rates, but will require a shift in skills to ensure the workforce can collaborate with and complement the technology

“From a national policy perspective, the link between infrastructure and investment should not be understated, as evidenced by the remarkable growth of tech hubs alongside the M4 corridor. Streamlining the UK’s planning process could accelerate the much-delayed national infrastructure pipeline and help projects move more swiftly from concept phase to shovels in the ground. It should also reassure investors that these projects can offer a viable, timely return and encourage the private sector to contribute capital to priority projects, unlocking a fresh wave of investment, jobs and growth.”