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The UK overall is expected to see annual average Gross Value Added (GVA) growth of 1.6% between 2025 and 2028 as the combined impact of rising real wages, falling inflation and interest rate reductions help economic momentum start to build towards the end of this year.
London and the East of England are both forecast to achieve annual GVA growth of 1.7% between 2025 and 2028. Close behind are the South East, the South West and Northern Ireland, which are all forecast to match the UK’s pace, with annual GVA growth of 1.6% between 2025 and 2028.
The recovery in these regions will be underpinned by a greater concentration of high-value sectors and relatively robust growth expected in industries such as information and communication, professional services, utilities and construction.
Every other part of the UK is expected to fall behind the national average over the same period, with the slowest rates of GVA growth expected in Scotland (1.4%) and the North East (1.3%).
Outlook for 2025
The next twelve months are expected to show a similar disparity. A weaker-than-expected end to 2024 and persistent inflation are forecast to weigh on the UK’s economic momentum, with national GVA growth predicted to be just 1% in 2025. London is the only part of the UK expected to outpace the national average, with 1.3% GVA growth over the next 12 months.
The South East, the East of England and Northern Ireland are forecast to match the UK average this year, while every other part of the UK is expected to lag behind. The regions with the slowest GVA growth over the next 12 months are forecast to be the North East (0.5%) and the West Midlands (0.6%).
Rohan Malik, EY EMEIA and UKI Managing Partner for Government & Public Sector, comments: “The UK is forecast to make a welcome return to steady growth this year, but the varied mix of sectors around the country means that some areas will feel that uplift more than others. Technology and professional services are expected to feature in the UK’s upcoming Industrial Strategy, with the hope that that these sectors will support economic momentum. Our analysis shows that these knowledge-intensive sectors are set to generate a wave of new and lucrative job opportunities, even as the wider UK labour market remains relatively flat. The challenge for policymakers will be how to foster growth in areas most in need.
“High value sectors require a high value workforce, so enhancing access to in-demand skills through targeted education and improved transport links will be essential for attracting investment. Upgrading energy infrastructure should also be prioritised, as reducing prices would ease pressure on the major industrials and manufacturing sectors. Expanding grid capacity is crucial to support widespread AI adoption, as there are currently only four substations in the country capable of powering the calibre of data centres required for a nationwide AI rollout, and three of these four are in London. The Government’s plans to streamline the planning process and accelerate grid connection should encourage investment, and progress will now depend on how swiftly new energy facilities can be built. Enhancing domestic power supply and capacity will help the UK harness the enormous cost reductions and productivity opportunities that AI offers nearly every sector, transforming growth potential into lasting prosperity."
London set to lead UK jobs growth in a relatively flat labour market
The imbalance in regional growth is also expected to be reflected in the jobs market. The UK is forecast to see relatively flat annual employment growth of 0.7% over the next three years as businesses continue to face elevated costs due to energy prices and the upcoming rise in employers’ National Insurance Contributions (NICs).
London (0.9%), the East of England (0.9%) and the South West (0.8%) are expected to record above-average jobs growth over the next three years, while the South East (0.7%) is forecast to match the national rate.
All other regions are expected to see employment grow more slowly than the national average, with the North East (0.5%) and Scotland (0.4%) forecast to see the slowest average annual growth in job numbers.
Knowledge-based industries expected to drive UK growth
According to the forecast, knowledge-intensive industries are expected to be among the UK’s fastest growing sectors over the next three years. Information and communication (which involves technology-led activity) and professional, scientific and technical activities (which includes R&D as well as business-to-business services) are expected to achieve average annual GVA growth of 2.6% and 2.2% respectively. Employment in professional, scientific and technical activities is forecast to grow by an average annual rate of 1.6% between 2025 and 2028, more than double the economy-wide employment growth rate of 0.7%.
These high growth sectors continue to be largely concentrated in specific areas. Over the next three years, more than half (55%) of the net new jobs created in information and communication and 43% of new professional scientific and technical jobs are expected to be in London and the South East.
However, degrees of growth in these knowledge-intensive sectors will also be felt in local economies across the country. Employment in professional, scientific and technical activities is expected to grow on average by 2.3% per year in Manchester, 2.2% in Cambridge, and 1.9% in Edinburgh. Strong growth is expected in information & communication activities in Stirling (1.4%) and Leicester (1.2%).
The construction sector is forecast see annual GVA growth of 2.1% and annual employment growth of 1.5% between 2025 and 2028, supported by the Government’s ambition to increase housing delivery and investment in transport. While the sector is projected to see above-average employment growth in every UK region, most of the new jobs are expected to be located in London and the South East, driven by infrastructure projects and housing demand.
Peter Arnold, EY UK Chief Economist, comments: “The years since the global pandemic have seen a two-speed economy emerge in the UK between knowledge-based industries and more consumer-facing sectors. While tech and professional services have recovered well and are around a fifth larger than they were pre-pandemic, sectors like hospitality and retail have struggled due to elevated energy and labour costs. It’s perhaps no surprise that locations with higher concentrations of these knowledge-based businesses are therefore expected to see the higher levels of growth and employment.
“Northern Ireland’s economy is expected to expand over the forecast period with its mix of retail, services, healthcare, manufacturing and construction helping it outpace the growth of other devolved administrations. In contrast, Scotland’s distinct sector mix and heavy concentration of energy-related businesses is expected to result in subdued growth over the next three years due to lower levels of North Sea oil production.”
Energy costs weigh on manufacturing and industrial sectors
The manufacturing sector is forecast to see employment contract by an average of 3% annually over the next three years. As elevated energy costs continue to shrink margins for manufacturing businesses, the sector’s GVA growth is also expected to be slower than other sectors, with average annual growth of 1.2% forecast over the next three years and a contraction of 0.6% predicted for the next 12 months.
Consumer-facing sectors such as accommodation and food services (0.9%), retail (0.6%) and arts and entertainment (1.2%) are also expected to see slower rates of average annual employment growth over the next three years.
Analysis shows UK lacks electricity capacity to power a nationwide AI rollout
The UK Government’s AI Opportunities Action Plan, published in January 2025, noted that driving AI adoption across the country could grow the national economy by an additional £400 billion by 2030. Widespread adoption of AI will require energy-intensive ‘hyperscale’ data centres, which typically involve power demands of over 100 megawatts. EY analysis suggests that the concentration of the UK’s limited transmission network capacity around London could be a constraint to scaling AI tools, and the associated productivity and economic growth opportunities, across the country.
The EY 2025 Regional Economic Forecast assessed existing UK substations based on ‘demand headroom’, or their capacity to accommodate fluctuations in electricity consumption. This analysis found that the majority of UK substations are not equipped to accommodate a hyperscale data centre, with only four out of 4,000 UK substations possessing the minimum demand headroom of over 100megawatts. Three out of these four substations are located in London, with the fourth located in the West Midlands.
The UK’s fastest growing towns and cities
The EY Regional Economic Forecast predicts that Reading will be the UK’s fastest-growing location outside of London over the next three years, with average annual GVA growth of 2.2%. Reading’s position on the M4 corridor has helped it to establish a significant knowledge-based economy that should continue to support its growth. Reading’s professional services and technology sectors are predicted to see average annual GVA growth of 2.8% and 2.9% respectively over the next three years.
Manchester (2.1%) Cambridge (1.9%) and Bristol (1.9%) closely follow behind Reading for forecasted average annual GVA growth over the next three years. These cities have high concentrations of professional services activity and Manchester (2.8%), Cambridge (2.9%) and Bristol (2.6%) are all expected to see the sector’s average annual GVA growth increase over the next three years, supporting their local economies.
Aberdeen (0.9%) is forecast to see the slowest GVA growth in the UK between 2025 and 2028, and is the only location over the period where average annual GVA growth is expected to be below 1%. The report suggests that without significant interventions, the city is expected to miss out on the pace of growth in professional services seen elsewhere and is expected to see its local mining and quarrying sector, which is focused on North Sea oil, contract by an average annual rate of 0.1% over the next three years.