The UK's regional economic divide is set to deepen, with London and the South East outpacing the rest of the country despite government levelling-up pledges, according to a report by EY. The accountancy firm forecasts that between 2024 and 2027, the UK economy will grow by an average of 1.9% annually, driven by lower inflation, a strong jobs market and expected interest rate cuts. However, London and the South East are projected to grow by 2% and 2.1% respectively, significantly above other regions.
In contrast, the North East of England, Wales and Scotland are expected to see growth of around 1.5%. EY warns that the capital and South East will increase their combined share of the UK economy from 39% in 2023 to 40% in 2027, up from 36% in 2005. Rohan Malik, UK and Ireland managing partner at EY, said the benefits of growth 'will not be felt equally across the country' due to longstanding geographic inequalities.
The report highlights that high-growth sectors such as professional services and technology are concentrated in a few locations, exacerbating regional disparities. Reading is forecast to become the UK's fastest-growing location with annual growth of 2.5%, overtaking Manchester, while Aberdeen, Blackpool and Dundee are among the slowest-growing areas. EY also notes that regions with lower average incomes, including Wales, Northern Ireland and Yorkshire, suffered sharper economic declines during the recent recession.
Separate data from the CBI shows private sector activity continued to fall in the three months to February. Alpesh Paleja, lead economist at the CBI, said the upcoming budget presents an opportunity to remove barriers to growth and focus on high-growth sectors. However, EY warns that without targeted regional support, the recovery is likely to widen the north-south divide.
