How productive is the West of England?

The West of England has a diverse economy, including rural areas, services-based jobs and advanced manufacturing hubs. Investment in infrastructure, skills and research and development (R&D) could help to boost the region’s productivity.

Improving productivity is a central challenge for the West of England, as it is for many other regions of the UK. Doing so would help to bring sustained growth in jobs, higher incomes and wider prosperity across each of the region’s local authorities – South Gloucestershire, the city of Bristol, Bath and North East Somerset (BANES) and North Somerset.

With opportunities arising from greater devolution in England, understanding the dynamics of local productivity is crucial for designing effective place-based policies and strategies to reduce inequalities and boost growth.

A new Brunel Centre report – which draws on a regional dataset constructed using (among others) annual population data, welfare, labour and housing market statistics, and business, investment and trade data – examines the productivity performance of the West of England and explores how improvements might be made.

What do we know about the West of England’s economy?

The local authorities that make up the West of England are economically diverse.

South Gloucestershire, which has strengths in advanced manufacturing, aerospace and defence, has consistently delivered strong productivity performance over the long term.

The city of Bristol has a more services-based economy and despite its economic scale, it has had relatively slower productivity growth in recent years. Indeed, while the city outperformed South Gloucestershire in the early 2000s, it has since fallen behind.

Compared with Bristol and South Gloucestershire, both BANES and North Somerset – which have more rural and visitor-based economies – have had weak productivity growth. Notably, BANES has even experienced periods of negative growth after 2005, further widening the gap with Bristol and South Gloucestershire, while North Somerset has recorded the lowest GDP per head overall.

Figure 1 shows gross domestic product (GDP) per head, a measure of productivity that indicates economic output per person, between 1999 and 2022.

This measure increased across all the local authorities in the West of England (excluding BANES) although the differences described above are clear, as are the fluctuations around 2007-09 and again in 2020 coinciding with the global financial crisis and the Covid-19 pandemic.

Figure 1: GDP per head, 1999-2022

Source: Office for National Statistics (ONS), local statistics
Note: The data shown are GDP per head using a chain volume measure (CVM) in 2019 prices. The CVM adjustment ensures that the data account for inflation, so that real growth patterns are observed.

All four of the West of England’s local authority areas have seen improvements in their gross value added (GVA) per hour worked since 2004 (see Figure 2). Using this measure instead of GDP per head provides a more accurate picture of productivity, as it focuses on labour efficiency and it is less influenced by population changes.

Figure 2: GVA per hour at nominal prices, 2000-22

Source: ONS, local statistics
Note: This upward trend is expected as the data reported are in nominal prices (values measured in the prices of the period, without adjusting for inflation).

A striking observation from Figures 1 and 2 is Bristol’s slower growth compared with South Gloucestershire. This shift partly reflects the city’s services-based economic structure, which includes a higher proportion of lower-wage, lower-productivity jobs.

Bristol – particularly its high-productivity sectors, which include finance and professional services – was also more affected by the global financial crisis of 2007-09. Lockdowns during the pandemic further suppressed sectors such as retail, hospitality and tourism, which are all prominent in the city’s economy.

South Gloucestershire was less exposed to these shocks, having an economy that is anchored in advanced manufacturing, aerospace and defence. These sectors are more resilient to short-term downturns and they are supported by longer-term contracts and international supply chains. These factors seem to have helped to cushion its local economy from the worst impacts of the global financial crisis and the pandemic.

How do the West of England’s local authorities compare with London?

Comparing the productivity performance of the West of England’s local authority areas with London boroughs is deliberately challenging, as the capital – being England’s largest urban area and most productive region – benefits from strong agglomeration effects.

Overall, productivity – measured by average GVA per hour – is notably higher in London (£40.60) compared with £35.09 across the West of England’s local authority areas.

Despite this, South Gloucestershire’s economy is marginally bigger and more productive than the best performing outer London borough (Hounslow), as Figure 3 shows. This chart plots GVA per hour worked for the year 2022 against the size of each region’s economy in GVA in millions of pounds.

The city of Bristol’s economy is over 25% larger than any of the outer London boroughs, but it is in the bottom quartile of performers in terms of productivity (GVA per hour). Given the size of Bristol’s economy, this suggests that the city has the greatest potential to contribute to regional economic growth through productivity improvements.

Both BANES and North Somerset are among the smallest and least productive economies in relative terms, shown by their position in the bottom-left quadrant of both panels in Figure 3.

Figure 3: GVA per hour worked by size of the economy, 2022

Source: ONS, local statistics
Note: Comparison with the outer London boroughs is most appropriate comparator due the fact that inner London is vastly inflated by the City of London.

South Gloucestershire’s productivity performance is only exceeded by four inner London boroughs (see Panel B) – specifically, those that are home to world leading financial and professional services hubs, including the City of London and Canary Wharf.

Bristol’s economy ranks strongly, with only six inner London boroughs generating a larger overall output. But the city’s productivity performance is less competitive, trailing ten London boroughs.

This suggests that while Bristol benefits from scale and diversity, it lags in terms of operational productivity, partially reflecting structural differences in its economic base – such as lower levels of capital investment and fewer large corporate headquarters than London.

How might productivity in the West of England be boosted?

While the West of England – and South Gloucestershire in particular – has built strong research capabilities, it seems that the region may lack the complementary investments in physical capital and skills that are needed to translate this research advantage into productivity gains.

For example, capital per job – a measure of investment in fixed assets such as machinery, information technology and buildings – is greater in London, averaging around £8,000, compared with £4,700 in the West of England Combined Authority (WECA).

In terms of education and skills, London has slightly higher rates of level 2 attainment (measured by the proportion of pupils achieving grade 4 in English and mathematics GCSEs by the age of 19) than the West of England.

But the WECA has higher average employment levels than the capital (average number of employments per WECA local authority and London borough areas) and more research and development (R&D) investment per job – £962 compared with London’s £713.

Analysis from the Brunel Centre report indicates that investment in capital per job and GCSE attainment rates are strong indicators of productivity. What’s more, the West of England could unlock a ‘productivity premium’ through targeted investments in education, training and skills development, capital infrastructure, innovation systems and R&D.

The research indicates that such investments – along with a coordinated growth plan – could deliver substantial productivity gains, particularly in Bristol where the combination of economic scale, proximity to high-performing South Gloucestershire and this latent productivity potential create the greatest opportunity for regional impact. By unlocking this potential, Bristol could also contribute to national economic growth.

Upgrading transport and digital networks, expanding energy and workspace capacity, and addressing educational attainment gaps would also reduce barriers and enhance labour market efficiency.

Complementary measures to deepen university-industry linkages, support innovation by small and medium-sized enterprises (SME) and strengthen sectoral clusters are also essential for fostering knowledge diffusion and technological adoption.