The UK economy is anticipated to experience an annual growth rate of 1.6% from 2025 to 2028, driven by declining price pressures, increased real wages, and reduced borrowing costs, according to a recent report by EY economists. This growth is expected to be primarily concentrated in London and the East of England, regions predicted to surpass the national average. In contrast, the North East, known as the UK’s slowest-growing area, is forecast to lag nearly half a percentage point behind the capital’s growth.

A Two-Speed Economy Emerges

Peter Arnold, EY UK’s chief economist, noted a significant shift in the economy since the pandemic, leading to a pronounced divide between knowledge-based industries and consumer-facing sectors. "It’s not surprising that regions with a higher concentration of knowledge-based businesses are projected to witness greater growth and employment opportunities," Arnold remarked. This divergence highlights the ongoing challenges surrounding the former Prime Minister Boris Johnson’s “leveling up” initiative, which aimed to revitalize areas left behind by globalization. Instead of narrowing the gap, many regions have found themselves falling further behind London and the South East.

Future Growth Strategies

The current Labour government’s strategy to stimulate growth across the UK hinges on enhancing infrastructure investment, accelerating the energy transition, promoting AI adoption, and addressing public service issues. While these sectors are anticipated to benefit from increased demand, the overall economy continues to face challenges from elevated taxes, soaring energy costs, and global uncertainties.

• Professional, Scientific, and Technical Jobs: Expected to grow at an annual rate of 1.6% over the next three years, more than double the general economy’s growth rate.
• Top Growth Locations:
  • Reading: Projected to be the second fastest-growing area outside London.
  • Manchester: Following closely behind, ranking third.
  • Cambridge: Also among the top three growth hotspots.

Impacts of Sector Decline

The decline of the North Sea oil industry, categorized under the mining and quarrying sector, is anticipated to negatively impact output in both Scotland and the North East of England. Rohan Malik, a managing partner at EY, emphasized that while the UK is set to return to consistent growth, the uneven distribution across sectors means that not all regions will experience this uplift equally.

Housing Challenges Ahead

Regions like London and the South East, which are grappling with significant housing shortages, are poised to benefit from the Labour government’s ambitious plan to construct 1.5 million new homes by 2029. However, the authors of the EY report caution that this could exacerbate existing regional disparities, creating a cycle of economic inequality that could be challenging to break.

In summary, while the UK is on a path to recovery and growth in specific sectors, the benefits are not evenly distributed, raising important questions about the future of economic equity across the nation.