West Midlands Set To Be One Of The UK’s Fastest Growing Regions – And Will Be Home To One Of The UK’s Top Locations For Economic Growth, Finds Latest EY Report

• Lichfield forecast to be joint fourth-fastest growing UK location between 2024-26, with annual average Gross Value Added (GVA) growth of 2.4%
• The West Midlands one of five regions set to match or beat UK average annual GVA growth of 2.1% between 2024 and 2026
• Retail sector a drag on West Midlands growth amid the rising cost of living – but information and communications sector growth set to boost wider region in the medium-term

Birmingham, Monday 27 February 2023: Lichfield is set to record the West Midlands’ fastest annual improvement in economic performance between 2024 and 2026, as the UK economy continues to recover from the COVID-19 pandemic, according to EY’s latest Regional Economic Forecast.

When measured by Gross Value Added (GVA), Lichfield’s economy is set to be the UK’s joint fourth-fastest growing location between 2024-26, with annual average growth of 2.4%, driven by strong Retail and Real Estate growth. This is faster than the predicted average UK growth of 2.1% per year. Birmingham and Wolverhampton (both 2.1%) are forecast to match average UK growth, while Dudley (1.8%) is forecast to grow the slowest in the region. As a whole, the West Midlands is expected to match the UK’s 2.1% average annual growth. 

Lichfield’s strong economic growth will also drive a strong employment performance, with the city also placing in the top ten UK locations for jobs growth. The city is forecast to see annualised employment growth of 1.5% between 2024-26, which is greater than the UK average of 1.3%. As a region, the West Midlands (1.1%) is expected to see jobs grow slightly slower than the UK average, with Sandwell (0.8%) forecast to see the region’s slowest growth in jobs.

The region’s 2024-26 GVA performance would represent a strong economic bounce back from 2023 – the region’s GVA is expected to contract 0.8% this year, compared to an overall UK GVA contraction of 0.6%.

Simon O’Neill, Managing Partner at EY in the Midlands, said: “Sectors continue to play a key role in forecast performance at a city and town level. The pandemic put pressures on city centres or supply chain-dependent manufacturing areas, such as the Black Country, and the rising cost of living is likely to have the biggest impact in places that are dependent on the local High Streets or public sector jobs, due to the squeeze on consumer spending and wages. 

“Retail and the manufacturing sector both make up important parts of the West Midlands economy, which is reflected in the region’s recent economic experience and forecast 2023 performance. But, beyond this year, the region has significant opportunities. Our high-value sectors, like Advanced Manufacturing, Professional Services, HealthTech and Medtech and Information Communications will be enormously important for both regional and UK growth – and represent a real chance to level up the UK economy. The transition to Net Zero, for example, represents a generational opportunity to rebuild the manufacturing base, upskilling workers across the value chain.”

The economic gap between London and the rest of the country set to grow again

The EY Regional Economic Forecast also says that the rising cost of living and weaker consumer spending are expected to deepen the economic divide between London and the rest of the UK.

The forecast says that UK Gross Value Added (GVA) is expected to decline 0.6% over the course of 2023, with London (-0.2%) the only part of the country predicted to see a smaller economic contraction than the UK overall. 

Driving the contraction in UK output in 2023 are the forecast declines in services most dependent on household spending. With consumers struggling amid cost of living pressures, this year’s worst performing sectors are expected to include wholesale and retail (-3.3% GVA contraction), accommodation and food services (-2.7%), and arts, entertainment and recreation (-1.8%). Manufacturing (-2.9%), which relies on consumer spending to maintain demand, also faces challenges relating to higher input costs such as raw materials and labour, alongside increased borrowing costs.

At the other end of the spectrum, less consumer-dependent sectors like administrative and support services (0.8%) and professional services (0.1%) are expected to see some growth, while sectors like real estate (-0.2%) and financial and insurance services (-0.5%) are forecast to see smaller contractions than the rest of the economy.

Over the course of 2024-2026, UK GVA is expected to grow at an annual average 2.1%, with London growing 2.6%. As well as the West Midlands (2.1%) the South East (2.2%), South West (2.1%) and East of England (2.1%) are also forecast to outpace or match wider UK growth. Like London, the West Midlands and the South West are both expected to be boosted by strong growth in the information and communication sector, which is expected to be the UK’s fastest growing sector in the medium-term.

The pattern in GVA growth is reflected in jobs, with only London, Northern Ireland and Wales expected to perform better than the UK as a whole in 2023. Job numbers in these three areas are expected to be effectively unchanged this year, and down 0.2% across the UK. The West Midlands is forecast to trail the rest of the country, with job numbers shrinking 0.4%. London is also forecast to see the highest increase in its working age population in the medium term, with annualised growth of 1.2% between 2024 and 2026.

Rohan Malik, EY’s UK&I Managing Partner Markets & Accounts, says: “The rising cost of living is likely to exacerbate the differences in regional economic performance, widening regional inequalities and heightening the need for economic policy which spreads growth out across the UK. Levelling-up presents an opportunity to boost growth for the whole of the UK – but familiar patterns are still all too present as the economy recovers from the pandemic.

“London clearly enjoys advantages in economic resilience, skill levels, and in productivity – both in higher and lower skilled sectors. But London’s performance also offers lessons for the rest of the country. Sector composition is key for regional economic performance, for example. Regions need their own visionary sectoral growth plans that define roles for the private sector, alongside government, as investors, employers and economic agents in their regions. It’s also vital to unlock investment in skills and encourage labour retention.

“The key to nurturing a strong sector composition is investment in high value-added sectors, like advanced manufacturing and information and communication. A one-size fits all approach won’t work though, and regions need to understand their own strengths, weaknesses, and sub-sector opportunities.

“High value sectors won’t function without a high value workforce and, too often, regions struggle to retain and uplift their skill bases. Fixing this needs to be approached from several angles: graduate and skills retention relies not just on the development of well-paid jobs, but strategic planning on the broader set of social, environmental and structural components that determine the quality of life in a given region too.”