Greater Manchester's thriving economy is surging ahead of the rest of the nation, highlighting the "stagnant" position London has occupied since the 2008 financial crisis, a new report has found.
As Chancellor Rachel Reeves outlines the productivity challenges confronting the º£½ÇÊÓƵ ahead of the Budget, fresh analysis from Oxford Economics has analysed the issues plaguing the capital and contrasted its progress – or absence of it – with that of its Northern counterpart, which has been dubbed the "trailblazer for local devolution".
The report, authored by cities and regions economist Alexander Harvey, contends that "nowhere has the productivity slowdown been more apparent than in London" since the 2008 global financial crisis, as reported by .
Harvey notes that gross value added (GVA) per job in London has risen by an average of just 0.2 per cent annually up to 2024. This compares with a national average of 0.6 per cent.
By contrast, prior to the financial crisis, London's growth and productivity climbed by an average of 2.7 per cent per year between 1991 and 2007.
The report further suggests that London's productivity growth has been "weighed down" by substantial falls across multiple sectors, "from its everyday economy to some of its most competitive and high-profile services" – including health, transport and storage, accommodation and food services, and education.
Harvey notes that this widespread decline in productivity "is not unique to London", though the capital has "have generally been more severe than the country at large" in its downturn.
The report further highlights that London's "productivity malaise" is being driven by elevated housing costs, which are "limiting agglomeration benefits by pushing workers further away from their place of work and disincentivising labour mobility".
Additional factors, including a weakened pound and stricter immigration requirements for skilled workers, alongside elevated energy costs that undermine business competitiveness and reduce disposable income levels, also "all combine to impede growth".
In the report, Harvey said: "With London making up almost a quarter of the º£½ÇÊÓƵ economy and 17 per cent of its workforce, any hope of significantly boosting the º£½ÇÊÓƵ's productivity growth must include an improvement in the capital's recent performance.
"To some extent, these very specific growth constraints in London, such as around poor housing supply, are driving a total national slowdown.
"Hence, policymakers need to both unlock growth in London while simultaneously promoting longer-term diversification and stronger performance of cities outside of the capital, to ensure that the º£½ÇÊÓƵ's economy can be more resilient."
The report also examines the underlying reasons why the º£½ÇÊÓƵ's output per hour has remained "consistently lower than other advanced economies for decades".
Harvey points to the "weak performance" of the º£½ÇÊÓƵ's major cities beyond London, which "underperform relative to the national average and act as a drag on total productivity".
He said: "In fact, the º£½ÇÊÓƵ is one of the few advanced nations in which its major cities are sources of national productivity weakness – the most comparable case is Japan, which also happens to have a national productivity problem."
The report further contends that the underperformance of Britain's cities "runs counter to the established view that urban economies act as centres of growth by bringing together labour, ideas, and infrastructure".
The analysis reveals that amongst the 11 mayoral combined authorities (MCAs) across the º£½ÇÊÓƵ, ten recorded total productivity levels below the national average – with the West of England standing as the sole exception.
Harvey concludes that "rather than being drivers of productivity, the º£½ÇÊÓƵ's largest cities are acting as a drag on the national level".
Regarding the underlying causes, the report identifies inadequate research and development investment, insufficient skills base, substandard intracity transport links and limited housing density.
Harvey said: "Taken together, these factors make º£½ÇÊÓƵ cities effectively small, in that their populations are poorly connected to employment centres and less attractive to skilled workers, given their more limited employment opportunities and amenities.
"It is no wonder, then, that many of these city-regions show very limited agglomerative returns."
The report does highlight, however, that productivity growth across the MCAs collectively has largely kept pace with the º£½ÇÊÓƵ average since 2008.
Regions including West Yorkshire, South Yorkshire and Greater Manchester have all delivered above-average growth – with Greater Manchester emerging as the "star performer".
Greater Manchester, the first MCA established, has been lauded as the "trailblazer for local devolution", with its economic performance expanding considerably faster than the º£½ÇÊÓƵ average.
Harvey said: "A major part of this success has been an accelerating industrial transition within Greater Manchester.
"The MCA now enjoys a more favourable industrial composition than the national average, as evidenced by the increasing share of workers in high-productivity sectors.
"A prime example of this has been the strong growth in Knowledge Intensive Business Services (KIBS) that Greater Manchester has experienced since 2008.
"Employment in Greater Manchester's KIBS sector has expanded faster than the national average, London, and all other MCAs, with close to half of these jobs concentrated in the city centre.
"Meanwhile, Greater Manchester also leads the way on overall GVA growth since the GFC; this is perhaps unsurprising given its strong productivity performance, though it is worth nothing that that it has paired this productivity growth with strong employment growth."
The report highlights that Manchester's city centre has been a significant contributor to the robust performance, boasting an average annual GVA growth rate of 3.6 per cent since 2008.
The analysis indicates that this figure is "far higher" than the growth rates observed in the city centres of other MCAs and "much stronger" than the national growth rate of 1.4 per cent over the same period.
The report further stated: "The strong performance of Manchester's urban core points to the importance of city centres to modern economies and serves as a model for other MCAs to follow if they want to improve their productivity performance, create high value employment, and improve access to opportunities across their economic geography."
'Productivity malaise at the heart of º£½ÇÊÓƵ's weak wage growth and fiscal challenges'.
In summarising the report, Harvey commented: "The º£½ÇÊÓƵ's productivity performance has been lacklustre since the 2008 global financial crisis – both historically and relative to its international peers.
"A collapse in London's productivity growth coupled with persistent underperformance in the º£½ÇÊÓƵ's other major cities lie behind the current productivity malaise, which is at the heart of the country's weak wage growth and fiscal challenges.
"Stagnating productivity in London has been central to this slowdown given the city's outsized role in the national economy.
"And the stagnation is broad-based, with London underperforming across most sectors.
"A range of factors have contributed to this shift, including high housing and living costs, a weak pound, and growing competition from other international hubs, which have reduced talent pipelines and limited agglomeration benefits.
"Poor productivity is also not an emerging issue. The historic and ongoing underperformance of the º£½ÇÊÓƵ's largest urban centres outside of London means that the economy lacks a critical mass of alternative economic centres that can pick up the slack when London's growth stutters.
"Weak transport infrastructure, skills shortages, and low investment are major obstacles to urban centres outside of the South of England, preventing cities from capturing the clustering benefits typical in large cities.
"Yet, there are some green shoots. Greater Manchester's productivity has notably outstripped the rest of the country, driven by strong growth in the city centre and in some of the most productive sectors of its economy.
"Given the growing importance of knowledge-intensive and advanced service sectors globally, º£½ÇÊÓƵ city-regions such as Manchester should be well-positioned to continue their strong growth rates."
