UK regional growth trends and prospects

In our latest UK Economic Outlook report we take a detailed look at the performance of UK regions over the past five decades.

We find that London has consistently outperformed other UK regions for most of the past three decades in terms of economic growth, but this has not always been the case. London had relatively slower output (GVA^[1]) growth in the 1970s and early 1980s as people moved out of the capital to other parts of Southern England.

This only began to reverse with the financial deregulation of the mid-1980s, which boosted London’s position as a global financial and business services centre and acted as a global magnet for talent that has boosted London’s population and GVA growth to well above the UK average since the 1990s (see Figure 1 below).

Figure 1: London has grown consistently faster than other UK regions since the 1990s

At the same time, a sharp decline in manufacturing activity hit traditional industrial regions in the North, West Midlands and Wales relatively hard, particularly in the 1980s. Since the 1990s, however, there has been less of a general North-South growth divide outside London. Relative growth rankings of different regions outside the capital have varied across decades without a clear, consistent pattern.

All regions have also seen a boost to total GVA growth from increased net immigration since the early 2000s, but this has also been reflected in a general decline in real GVA per capita growth across UK regions relative to the average rates seen in earlier decades.

Will London’s dominance continue?

More recently, there are some signs from the latest housing and labour market data that London’s relative performance may have been less strong in 2018 and we expect this to continue in 2019-20, with London growing at only a slightly faster rate than the UK average in those years (see Figure 2).

Figure 2: Projected regional economic growth assuming an orderly Brexit (% pa)

It remains to be seen if this is a short-term cyclical phenomenon or the start of a longer-term trend. The case for the former is that London retains advantages as a global financial centre that no other UK region can match, and it also remains a leading European hub for fast-growing digital sectors.

On the other hand, London’s growth could be held back by problems related to transport congestion and lack of affordable housing, as highlighted in our latest Good Growth for Cities report. While Brexit will affect all parts of the UK, London could be particularly exposed if it reduces its attractions as a destination for global talent in key sectors like finance and digital.

More generally, regional growth should not be seen as a zero sum game where strong London growth has to be at the expense of other regions losing out. Looking beyond Brexit, the challenge for policymakers will be to invest in infrastructure, innovation and skills across the regions, harnessing the benefits of London’s success for the good of the country as a whole.

[1] GVA refers to Gross Value Added, which is the closest regional equivalent to GDP at national level.