London pulls away from rest of Britain in competitiveness index | Investing

The London economy and parts of the south-east have become more attractive to investors than the rest of Britain over the past year, according to a study.

A report by academics at the University of Cardiff and Nottingham Business School found that out of 362 areas across England, Wales and Scotland, nine of the top 10 in a competitiveness index were London boroughs.

Runnymede, a borough to the west of London, was ninth, below new entrant Hackney and above Southwark.

The study’s authors said London and the home counties, including the top-ranked City of London, Westminster and Camden, stretched their lead over the rest of the regions and nations of Britain as the most economically attractive areas.

Only East Anglia and Cambridgeshire managed to keep pace with the capital, which the report’s authors said was due to their integration with London.

“The east of England regions are becoming increasingly decoupled from the rest of the nation. It is clear that a location’s proximity to London is becoming an important determinant of its competitiveness and future economic growth. The nation will become further reliant on the relative growth hotspots in the capital and surrounding areas,” they said.

Camden was considered to have a cultural life that would be attractive to entrepreneurs, along with the transport, skilled workers and homes needed to support high-wage employees.

“In some regards, Camden, with its cultural amenities and bohemian flavour, might be regarded as the archetypical locality that would attract the high-skilled creative classes who not only innovate themselves, but also create an environment that is attractive to other high skilled groups,” the authors said.

A surge in start-up businesses in Hackney in the past year and similar cultural attributes to Camden meant that it jumped 10 places between 2019 and 2023.

The local areas ranked in the bottom 10 were scattered across much of England and Wales.

East Lindsey, which includes the east coast resort of Skegness, had the worst ranking.

The authors said: “It is a largely rural locality with a significant proportion of its economy associated with agriculture and food production.

“As this is one of the sectors which have been hit hardest by the loss of access to cheap labour from the European Union, this is likely to explain some of its loss in competitiveness.”

The report said Skegness held little attraction for businesses, like many resorts on the east coast affected by economic developments over the past 20 years.

Blaenau Gwent and Merthyr Tydfil in Wales, and Torbay and Gosport on the south coast of England, were also among the least competitive localities.

The authors said they defined competitiveness as “the capability of a local economy to attract and maintain firms with stable or rising market shares in an activity, without sacrificing the standards of living of those who participate in it”.

They added: “It is true that an area with low wages and property prices may be attractive for some businesses, but such activities tend to be low value-added and footloose, and are not necessarily going to improve standards of living and achieve levelling up. In other words, being cheap doesn’t equate to competitiveness.”

Rishi Sunak has said he wants the UK to be a high-wage economy, attractive to domestic and foreign businesses prepared to invest in high-skilled workers.

Mark Gregory, a visiting professor at the University of Staffordshire and a former chief economist at the consultancy EY, said the study was unable to capture some important aspects of a local economy that attract businesses.

He said that while London scored highly as a cultural centre, it was increasingly unattractive as a place for young, skilled graduates to work, mainly due to soaring housing costs.

Some areas that fell into the bottom half of the competitiveness rankings were attractive places to live and work even though wages were low, Gregory said.

“How an area is perceived by businesses is another important element driving decisions about where to locate. Tech firms will go where young people want to be and where infrastructure is best, while pharmaceutical businesses will want to be near universities,” he said.

“Manufacturing, which attracts most foreign direct investment, is highly sensitive to wage levels and will want to locate where they are relatively low, not in cities.”

The report found that between 2019 and 2023, the biggest improvements in the competitiveness rankings were in Folkestone and Hythe, Bury, Wolverhampton and Worcester.

Wolverhampton’s improvement was probably due to the potential benefit from the HS2 railway line, the authors said, while Worcester had become more attractive to skilled workers after the pandemic because of its proximity to rural areas.