Regional disparity in the UK's economy remains deep, as the gap between the prosperity of London and the South East and that of the rest of the country continues to widen at an alarming rate, according to new analysis. Yet, despite the government's efforts to boost growth across the country as part of its 'levelling up' programme, the capital and its region are set to gain an even greater share of overall economic activity over the next few years.
Widening Economic Gap Between London/South East and the Rest of the UK
Despite government efforts to boost economic growth outside of London and the South East through 'levelling up' initiatives, these regions continue to outperform the rest of the UK. EY's recent analysis projects that London and the South East will experience the highest economic growth rates across the UK between 2024 and 2027 at 2% and 2.1% respectively, significantly higher than the 1.5% growth forecast for regions such as the North East, Wales and Scotland.
Given that London and the South East already account for 39% of the UK economy, the growing dominance of these regions in the UK economy is worrying. According to EY, this figure is expected to increase to 40% by 2027, highlighting the worsening regional economic divide.
By supporting high-growth sectors across the UK, the government's 'levelling up' agenda aims to address these geographical inequalities. However, less than 20% of approved levelling up projects have been completed, raising doubts about the effectiveness of these policies.
“The UK’s longstanding geographic inequalities mean 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,” he said.
“The UK’s longstanding geographic inequalities mean 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.” said Rohan Malik, UK&I Managing Partner.
The 2023 recession, which had an uneven impact across the country, exacerbated regional economic inequalities in the UK. Regions with lower average incomes, such as Wales, Northern Ireland, and Yorkshire, experienced the sharpest declines in economic activity. In contrast, London and the South East were better prepared to withstand the economic downturn because of their concentration of high-value sectors such as professional services and technology.
What is the Next Step in the UK's Economy?
The government's emphasis on 'levelling up' has not translated into tangible progress, with disparities persisting. Both tax incentives and infrastructure investment should be channelled to areas outside London to stimulate growth and encourage innovation. Such a targeted approach is crucial to equitable economic development.
Although it is vital to tackle regional disparities, it is also essential to safeguard national economic interests. Policies need to promote growth across the UK, rather than shift activity from London to other cities. This means striking a delicate balance to ensure regional progress without undermining global economic competitiveness.
Now, as the government prepares its budget, it is at a pivotal moment to reaffirm its commitment to "levelling up". Priority should be given in the Budget to targeted regional support while maintaining a focus on the resilience of the national economy. Such a balanced approach is imperative for sustainable and inclusive growth.