Economic Levelling Up Requires More Overseas Investment And Diversified Local Economies Says Report
The Government’s levelling up agenda will fail to take off unless significantly more is done to help local economies outside of the South East attract Foreign Direct Investment* (FDI) and diversify towards faster growing sectors, says new research.
According to Irwin Mitchell’s UK Powerhouse report, which has been produced by the Centre for Economics and Business Research (Cebr), eight of the top 10 fastest growing city economies by the end of next year will be in the South or East of England.
Significantly, out of the 50 locations included in the study, over half of the slowest growing economies are expected to be in the North of England. Warrington is expected to be the fastest growing city in the North by the end of next year, but it only comes in 20th place in the study’s league table for year-on-year GVA** growth.
The report highlights Milton Keynes’ advantageous location within the Oxford-Cambridge Arc - a region identified as being of global importance for innovation and business activity. It adds that the city’s growth is boosted by its high productivity levels and prevalence of business start-ups.
Future investment in the region will not only boost Milton Keynes as the report predicts Cambridge and Oxford’s 2.5% year-on-year growth in employment by the end of 2023 will be the fastest in the UK.
It adds that Milton Keynes as well as Oxford, Peterborough, Reading, Brighton and Inner London are home to a cluster of tech businesses, a sector that has been a key driver of the UK’s growth in recent years.
At the other end of the scale, the slower growing cities are all home to declining industries. Aberdeen’s oil-based economy is set to grow by just 1.3% in Q4 2023, while the former industry hotbed of Wolverhampton and port cities of Belfast, Hull, and Plymouth are each expected to grow by just 1.4%.
UK Powerhouse also examines the latest trends in Foreign Direct Investment (FDI) into the UK.
Although both London and the South East have seen a 23% annual dip in the number of FDI projects in 2020/21, the vast majority of investment was in these locations.
The report says the dominance of London and the South East when it comes to FDI levels contributes to the continued contrast in economic outcomes between the South and North of England.
Expert Opinion“FDI brings potential for higher productivity and improved economic output for many years into the future. There are signs that despite a fall in the number of projects last year compared to the previous 12 months, more recent data from the United Nations points to a strong recent recovery. We are certainly seeing some encouraging signs with an increase in enquiries relating to organisations looking to invest here.
“I’m optimistic that levels of FDI into the UK will increase, however from a levelling up point of view, it is important that it doesn’t become concentrated in locations which are already growing quickly. The whole of the UK has a lot to offer and the regions which benefit most from investment from abroad are likely to see more growth and job creation in the coming years.
“According to our report, the West Midlands and North West are third and fourth for regional FDI. There is therefore hope that these regions may level up to see the investments that their southern counterparts currently attract.”
Bryan Bletso - Partner
Josie Dent, Managing Economist at Cebr and one of the report’s authors, said: “The economy is still expected to face some turbulence between now and the end of next year, notably through volatility in commodity prices, supply chain pressures, and the emerging cost-of-living crisis domestically. All of these factors are set to impact growth both at the aggregate level and, to a varying extent, within individual cities.
“This report highlights that much of the fastest growth during next year will be concentrated in the South. Locations such as Milton Keyes, Cambridge and Oxford have economies which are dominated by fast-growth sectors and they have also been hot spots for overseas’ investment. If economic levelling up is to be tackled effectively, these two issues must be recognised and quickly addressed.”
* Foreign Direct Investment (FDI) refers to cross-border flows where an investor establishes a lasting interest in a subsidiary located in a country that is not the investor’s. Typically, 10.0% or more of the organisation’s voting power should be controlled by the foreign investor for this to represent a lasting interest.
** GVA – Gross Value Added (the total value of goods and services produced)