The City: Continuing to attract investment

London and the South East are to continue to lead the expansion in the British economy, according to an independent report.

Cambridge Econometrics published the latest edition of its Regional Economic Prospects forecasts on Tuesday and found that imbalances between the regions are set to worsen.

The group estimated that overall gross value added (GVA) growth in the UK will be just above three per cent this year when the final figures are analysed. This is within the chancellor's predictions of between three and 3.5 per cent of GDP.

All regions will have expanded in 2004, the economists said, but none will have caught up at all with the Capital or the surrounding counties, which are already much richer than the rest.

Yorkshire and the Humber and Wales, both traditionally under-performing areas, will have almost matched the rate of growth in the South East of over 3.25 per cent GVA but still fall short.

Meanwhile Scotland is set for GVA growth of three per cent, with the North West and the North East expected to record a similar level.

"Household spending is expected to recover strongly in the South East and in London reflecting rising household incomes through 2003 and in 2004," the report said.

"Employment in the South East has continued to increase while earnings have also grown strongly reflecting the tight labour market.

"In London, employment did not perform well in 2002, but growth returned in 2003 and further growth has continued into 2004.

"Household income growth in London is expected to be strong in 2004 reflecting both the recovery in the labour market, and in particular the strong growth in earnings; earnings have been boosted by large bonus payments to private services workers, notably in the City."