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Pandemic temporarily narrows UK economic divide, EY reports

The firm also found eight out of nine English regions expected to have returned to their pre-pandemic levels of output by the end of 2022.

London’s Gross Value Added (GVA) fell 3.6% between 2019 and 2021, while UK GVA fell 3% – but London’s GVA is forecast to grow 3.1% per year between 2021 and 2025 compared to UK annual growth of 2.8%.

According to EY’s latest Regional Economic Forecast, the East Midlands and South West are expected to be the only regions to have gained ground on London by 2025 compared to 2019 – and only four UK regions will see their working age populations grow by 2025.

The North East, by contrast, is expected to see its working age population fall by 2% over the same period. London is predicted to regain or exceed its pre-pandemic share of UK employment (30.9%) and GVA (39.1%) in 2025 too.

The firm also found eight out of nine English regions expected to have returned to their pre-pandemic levels of output by the end of 2022.

Relative to their pre-pandemic GVA levels, EY revealed the East Midlands (up 9.5%), the South West (9%) and London (8.9%) are expected to grow the most by 2025. By contrast, the West Midlands (up 5.3%), North West (6.8%), and North East (7.9%) are expected to grow at the slowest pace.

The report also forecasts that the economic gap between cities and towns will continue to widen, with England’s major cities expected to grow 2.9% per year by 2025, compared to forecast growth of 2.6% in towns.

Rohan Malik, EY’s UK&I managing partner, markets and accounts, said: “The structural forces driving UK regional economic inequality are deep-rooted and are unlikely to be reversed overnight.

“Long-term ambitions and sustained, coordinated action are needed to balance growth across the country while ensuring that ‘levelling up’ isn’t simply moving activity elsewhere at London’s expense. The right actions now will bear fruit eventually, but policymakers need to be in this for the long haul.”

He added: “Greater flexibility on where people work, aided by the pandemic, could help things. Focusing on what attracts people and businesses to a region, attracting the right mix of sectors and job opportunities, and tackling issues that affect quality of life will be key to taking advantage of this.”

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