The UK Economy; An Outlook

Recent economic performance In June 2022, the UK economy shrank by 0.6%, with polarised growth recorded at regional levels. While economic output stood at 0.9% above its pre-pandemic level in February 2020, some regions struggled to breakthrough beyond the pre-pandemic levels, deepening the regional growth imbalance. Latest data shows London growing at the fastest rate (in Q3 2021), while other regions, such as the North East, the Midlands and Wales, experienced a contraction of between 1.2% and 0.3%, and remain around 3.3% smaller than pre-pandemic levels.

UK growth outlook The growth outlook for the UK has deteriorated. Over 2022, we expect UK GDP growth to average between 3.1% and 3.6%, followed by two years of slow, or even negative, GDP growth.

UK productivity

UK productivity gaps have been persistent, but improving sectoral productivity in some regions – to at least the industry’s median levels – could add £71.6bn to the UK output in 2023. London and the South East are the only two regions that exceeded the average UK productivity levels, making closing the regional productivity gap more crucial to the levelling up strategy as well as the overall economic growth. Our analysis suggests industry composition, variations in skills levels and labour activity are the most important factors in explaining differences in productivity across UK regional areas and so should be a particular focus of investment for both government and business.

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