London’s productivity slump highlights Manchester’s momentum

The UK’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 UK’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 UK’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.

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