The UK’s major cities outside of the Southeast of England have the potential to boost their services trade, despite continuing domination of the export tables by London, according to a leading economic think tank.

A new report from the Resolution Foundation finds that the UK’s strength in services exports is increasingly important for the economy, with global services growth expected to outpace that of trade in goods over the next few years.

The UK remains a services-based economy, being the second largest services exporter in the world.

London calling

However, the paper – called ‘Local Roots of Trade Routes’ – found that much of the trade in services remains concentrated in London, with the capital taking the lion’s share of growth in services exports since 2016.

The UK’s other major cities, including Manchester, Birmingham, Glasgow and Leeds, experienced limited growth over the same period.

“Overall, Britain should celebrate our services specialisms, but policymakers should recognise that the recent growth in services exports has been concentrated in our capital,” write the paper’s authors.

‘Superpower’

Marco Forgione, director general of the Institute of Export & International Trade (IOE&IT), says:

“It is already known that the UK is a global services superpower, any data showing an increase in the services sector can only be good news for the country.

“IOE&IT's own recent report ‘Global horizons: realising the services exports potential of UK nations and regions’ demonstrated why we excel in this area. It’s vital we maintain our global advantage as a services exporter and one of the key recommendations from our report was the creation of regional sector specialisations. If implemented, they would improve regional outputs.

“There must be a sustained focus on levelling up the UK’s services exports, especially those in the underrepresented regions outside of London and the South East. International trade is a fundamental force for good and research shows that businesses that export are more productive, more innovative and see more growth.”

Manchester and Birmingham

According to the research, London already exported 10 times as many services as the UK’s second largest city, Manchester, in 2016.

London’s services exports grew by 47% between 2016 and 2021, while over the same period Manchester’s growth rate was 11%.

Birmingham, the third largest city in the UK, only enjoyed a 3% rise services over the same period.

The growth in London came in areas beyond the capital’s normal strength of the financial sector. London’s export of information and communications grew by 15% between 2016 and 2021, while its share of financial services fell slightly from 36% to 35% over the same period.

Core cities

The report finds that 56% of services exports and imports comes from one of the UK’s 12 “core cities”. However, within this London remains dominant, with the remaining 11 cities accounting for 12% combined, compared to 44% for the capital.

The report points to the French example, saying

“The success of France’s second cities in growing service industries and exports suggests there is no reason recent growth in services trade should be so limited to London.”

And the authors add that measures such as sufficient housing for a skilled workforce, with proper mass transit links to central business districts, would help transform the UK’s other major cities into “successful hubs” for tradable services.

IOE&IT’s Global Horizons report identified four factors that drive the Services Export Potential of a city or region, namely economic complexity, education and skills, connectivity and higher education R&D. The report found that improving any of these factors would lead to an increase in regional services exports and, therefore, regional economic prosperity.