High-value sectors and construction to drive Midlands growth, says report
Lichfield and Birmingham are set to lead economic growth in the Midlands over the next three years, according to the latest EY Regional Economic Forecast.
Despite a drop in manufacturing employment, growth is set to be driven by high-value knowledge-based sectors positioning themselves across the region, alongside an uplift in construction.
The Midlands is projected to see an annual Gross Value Added (GVA) growth rate of 1.5% between 2025 and 2028, slightly below the UK average of 1.6%.
In the West Midlands, GVA is expected to grow by 1.5% next year, alongside a 0.6% increase in employment opportunities.
Lichfield is on track to be the fastest-growing smaller location in the UK, with 2% GVA growth, while Birmingham is forecast to be the joint-fifth fastest-growing major city, with 1.6% annual GVA growth. Redditch and Rugby are also among the region’s top-performing areas, benefiting from high-value sectors and seeing 1.6% growth.
In the East Midlands, GVA growth is expected to match the West Midlands next year, though employment growth will be slightly lower at 0.5%. Nottingham (1.6%) and Leicester (1.3%) are set to play major roles in the region’s economic landscape.
Construction will remain a key driver across the Midlands, with an average annual GVA growth of 2% over the next three years, supported by the Government’s focus on housing delivery and transport investment.
Manufacturing, a longstanding contributor to the Midlands economy, accounted for 13% of GVA in the West Midlands and 15% in the East Midlands in 2024. However, the sector faces challenges from rising energy and labour costs, with manufacturing employment projected to decline by 2% annually in the East Midlands and 1.5% in the West Midlands.
Despite this, both regions are expected to see modest GVA growth in manufacturing – 1% in the East Midlands and 1.3% in the West Midlands – as they transition towards advanced manufacturing.
Tech and professional services are among the fastest-growing sectors. In the West Midlands, information and communication (2.5%) and professional, scientific, and technical activities (2%) will contribute an additional £1.5bn to the economy by 2028. The East Midlands will also see strong growth in these sectors, at 2.7% and 2% respectively, though their total economic contribution will be 24% lower than in the West Midlands.
Simon O’Neill, EY Managing Partner for the Midlands said: “The Midlands is forecast to record solid, steady growth over the next three years, driven in large part by the high-value knowledge-based sectors that have built up across the region, as well as an expected uplift in construction. The West Midlands’ more established ecosystem of tech and professional services businesses will likely give it the edge over the East Midlands, delivering greater levels of prosperity.
“Manufacturing has traditionally played a key role in the Midlands’ economy, but many of these companies are facing elevated energy and labour costs, which is impacting margins and demand for staff. Nevertheless, manufacturing is expected to remain a major economic contributor to the region in the years ahead, particularly as the sector transitions towards advanced manufacturing. Policymakers and businesses should consider how to ensure the Midlands can capitalise on its traditional industrial and manufacturing strengths while also building skills to fuel emerging high-growth sectors such as tech and professional services.”
