Inequality to Widen as UK’s ‘Levelling-Up’ Plan Lies in Tatters

(Bloomberg) -- Most UK regions are set to fall further behind London over the next three years, according to a new analysis, highlighting the Labour government’s challenge to improve living standards across the country.

The UK as a whole is forecast to grow 1.6% a year between 2025 and 2028 thanks to easing price pressures, real wage growth and lower borrowing costs, EY economists wrote in a report Wednesday. Most of those gains will be concentrated in London and the east of England, the only areas expected to outpace the national average. Projected growth in the north east, the UK’s most sluggish region, is almost half a percentage point below the capital’s.  

“The years since the global pandemic have seen a two-speed economy emerge in the UK between knowledge-based industries and more consumer-facing sectors,” said Peter Arnold, chief economist at EY UK. “It’s perhaps no surprise that locations with higher concentrations of these knowledge-based businesses are therefore expected to see the higher levels of growth and employment.”

The findings add to evidence that former prime minister Boris Johnson’s promise to “level up” the country has failed to turn into reality. The plan was meant to boost parts of the UK that felt left behind by globalization while London pushed ahead. Instead, those areas have fallen further behind the capital and the South East.

The Labour government’s pledge to revive growth in all parts of the UK relies on boosting infrastructure investment, speeding up the energy transition, driving AI adoption and fixing public services. While these sectors will benefit from a demand boost, the rest of the economy remains under pressure from higher taxes, elevated energy costs and heightened global uncertainty.

Jobs in professional, scientific and technical activities are set to grow at a average annual rate of 1.6% over the next three years, EY said, more than double the economy-wide growth rate. This will fuel activity in towns with a high concentration of knowledge workers such as Reading. The town to the west of London is predicted to be the second fastest-growing location outside of the capital over the next three years. Manchester is the second highest, with Cambridge third.

At the same time, the decline of the North Sea oil industry — measured as part of the “mining and quarrying” sector — will weigh on output in Scotland and the north east of England.

“The UK is forecast to make a welcome return to steady growth this year, but the varied mix of sectors around the country means that some areas will feel that uplift more than others,” said Rohan Malik, a managing partner at EY.

London and the south east, the regions facing the worst housing shortages, are also set to be the main beneficiaries of Labour’s pledge to build 1.5 million new homes by 2029. The EY report authors said this “does risk entrenching regional disparities and there is a certain circularity that exists economically.”

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