The London economy powered ahead of the other regions in England, posting the fastest recovery from the impact of the coronavirus outbreak lifted by strong growth in professional services, according to latest official data.
The capital’s economy grew 2.7 per cent in the three months to the end of June, compared with the final quarter of 2019 before the pandemic hit, figures published by the Office for National Statistics on Thursday showed.
This was the strongest performance of any other region and stands in stark contrast to the national average, with GDP across England still 1.7 per cent below pre-pandemic levels, underlining the challenge the government faces in delivering on its so-called levelling up agenda, intended to rejuvenate struggling communities across the country.
The East and West Midlands were some of the worst performing English regions with output still 5.7 per cent below the final quarter of 2019.
“Despite all the talk of levelling up, it’s clear the limited actions so far have made no inroads into the large disparity in economic performance,” said Susannah Streeter, senior investment analyst at asset manager Hargreaves Lansdown.
She added that a “vast array” of factors are at play in the regional divergence and that the government needs to address longer-term structural problems including social care and adult educational opportunities.
However, the worst performance came from the South East, England’s second richest region after London, which includes the counties of Berkshire, Buckinghamshire, Surrey and Kent. Output was down 7.1 per cent on pre-pandemic levels, hit by falls in construction, services and manufacturing.
The data also showed that London had the strongest quarter-on-quarter growth at 1.2 per cent and the fastest annual growth rate at 9.5 per cent, further widening the gap with poorer regions.
Levelling up was a key theme of the ruling Conservative party’s 2019 election campaign. Earlier this week, the Financial Times revealed that the government had banned the Department of Levelling Up, Housing and Communities from making spending decisions on new capital projects without specific permission from the Treasury. The decision follows concerns about the ministry’s ability to deliver value for money.
The figures, which the ONS warned were experimental, showed that the capital’s growth was driven by professional services, which are concentrated in London and were less severely hit during the pandemic due to the shift to hybrid working. The capital’s hospitality sector also performed well.
Jonathan Portes, professor of economics and public policy at King’s College London, said that this shows that fears that big cities would suffer permanent damage from the pandemic were “overblown”.
In contrast, the Midlands suffered from widespread contraction in the manufacturing and services sectors. The East Midlands also registered a 23 per fall in construction.
Portes said the divergence was no surprise considering the government “continues to underinvest in transport infrastructure etc outside London and to refuse to devolve genuine financial freedoms to regions and localities”.