The EY 2025 Regional Economic Forecast projected Aberdeen as the UK’s slowest-growing city, facing significant challenges due to the declining North Sea oil sector.

The UK is projected to experience an average annual GVA growth of 1.6% from 2025 to 2028, with Scotland expected to reach 1.4%. This positions Scotland ahead of the North East of England, which is forecasted to grow at just 1.3%. Scotland’s 2025 employment growth is anticipated to be even slower, at 0.4%, compared to the UK average of 0.5%.

London and the East of England are both forecast to achieve annual GVA growth of 1.7% between 2025 and 2028. Close behind are the South East, the South West and Northern Ireland, which are all forecast to match the UK’s pace with annual GVA growth of 1.6% between 2025 and 2028.

Among Scottish cities, Edinburgh stands out with a robust forecast for GVA growth in knowledge-intensive sectors, particularly professional, scientific, and technical activities, which are expected to grow by an average 1.9% annually. These sectors are significant drivers of GVA growth, contributing to Edinburgh’s overall economic resilience. Glasgow is expected to see GVA growth of 1.6%, with employment growth predicted to be 0.8%.

Aberdeen is projected to trail behind with average annual GVA growth of only 0.9% over the next three years due to a contraction in the energy sector and limited growth in professional services, as a result. Aberdeen is the only UK city expected to see less than one per cent growth from 2025 to 2028, making it the lowest performing city in the UK.

Aberdeen is also forecast to experience negative household income growth averaging -0.4% from 2025 to 2028. This decline is in stark contrast to some other cities where growth in household income is projected to remain relatively strong, including Belfast (1.8%), Manchester (1.5%) and Bristol (1.5%).

The long-term decline in North Sea oil production is expected to pose a significant economic challenge for Scotland, particularly Aberdeen. The decline in activity in this sector is widely known to be impacted by the long-term structural changes at the economy-wide level, as many oil fields reach the end of their useful life. However, it is hard to dispute the fact that policy has played a key part in its acceleration.

Overall, these developments present a significant impediment to growth – and one that may be further weighted to the downside, given the changed geopolitical trajectory since the new US administration took office.

EY senior partner for Aberdeen, Moray Barber, said: “While some of the lower performing regions and cities are already in positions of economic strength, growth – especially in terms of employment and GVA – is important to maintain that position and a competitive advantage. 

“Both governments are arguably ambivalent towards new investment in oil and gas production, and the extension of the Energy Profits levy to 2030 has also acted as a barrier to investment – this despite energy price shocks over recent years, and the geo-political exposure of the UK and European economies’ reliance on imported oil and gas.

“Aberdeen continues to acutely feel the uncertainty over the UK’s energy future, and we’re seeing the reality of the resulting lack of confidence in these figures. The Chancellor’s upcoming Spring Statement – as well as the recently announced consultation to a successor regime to the Energy Profits levy - is an opportunity to reset and offer some much-needed assurance.

“If a sentiment change in global energy policy is triggered by moves in the US, then we could see an increase in finance flow into local projects and initiatives that are greatly needed if true energy transition – and revolution – is to be realised. Without it, then local jobs, our vibrant supply chain economy and the very future of the UK’s energy security continues to hang in the balance.”

The report highlights a widening contrast between cities like Reading and Manchester, which are expected to see GVA growth of 2.2% and 2.1%, respectively, driven by strong knowledge economies. In contrast, smaller areas in Scotland, such as Perth and Kinross, are forecasted to have one of the weakest labour markets, with employment growth of just 0.1% per year. This disparity underscores the challenges faced by certain regions in Scotland, particularly those reliant on traditional industries.

EY UK chief economist, Peter Arnold, commented: “The years since the global pandemic has seen a two-speed economy emerge in the UK between knowledge-based industries and more consumer-facing sectors.

“While tech and professional services have recovered well and are around a fifth larger than they were pre-pandemic, sectors like hospitality and retail have struggled due to elevated energy and labour costs. It’s perhaps no surprise that locations with higher concentrations of these knowledge-based businesses are therefore expected to see the higher levels of growth and employment.

“Northern Ireland’s economy is expected to expand over the forecast period with its mix of retail, services, healthcare, manufacturing and construction helping it outpace the growth of other devolved administrations. In contrast, Scotland’s distinct sector mix and heavy concentration of energy-related businesses is expected to result in subdued growth over the next three years due to lower levels of North Sea oil production.”

The UK overall is expected to see annual average Gross Value Added (GVA) growth of 1.6% between 2025 and 2028 as the combined impact of rising real wages, falling inflation and interest rate reductions help economic start to build towards the end of this year.

Outlook for 2025

The next twelve months are expected to show a similar disparity. A weaker than expected end to 2024 and persistent inflation are forecast to weigh on the UK’s economic momentum, with national GVA growth predicted to be just 1% in 2025. London is the only part of the UK expected to outpace the national average with 1.3% GVA growth over the next twelve months.

The South East, the East of England and Northern Ireland are forecast to match the UK average this year, while every other part of the UK are expected to lag behind. The regions with slowest GVA growth over the next 12 months are forecast to be the North East (0.5%) and the West Midlands (0.6%).

London set to lead UK jobs growth in a relatively flat labour market

The imbalance in regional growth is also expected to be reflected in the jobs market. The UK is forecast to see relatively flat annual employment growth of 0.7% over the next three years as businesses continue to face elevated costs due to energy prices and the upcoming rise in employers’ National Insurance Contributions (NICs).

London (0.9%), the East of England (0.9%) and the South West (0.8%) are expected to record above-average jobs growth over the next three years, while the South East (0.7%) is forecast to match the national rate.

All other regions are expected to see employment grow more slowly than the national average with the North East (0.5%) and Scotland (0.4%) forecast to see the slowest average annual growth in job numbers.

Knowledge-based industries expected to drive UK growth

According to the forecast, knowledge-intensive industries are expected to be among the UK’s strongest growing sectors over the next three years. Information and communication (which involves technology-led activity) and professional, scientific and technical activities (which includes R&D as well as business-to-business services) are expected to achieve average annual GVA growth of 2.6% and 2.2% respectively. Employment in professional, scientific and technical activities is forecast to grow by an average annual rate of 1.6% between 2025 and 2028, more than double the economy-wide employment growth rate of 0.7%.

Analysis shows UK lacks electricity capacity to power a nationwide AI rollout

The UK Government’s AI Opportunities Action Plan, published in January 2025, noted that driving AI adoption across the country could grow the national economy by an additional £400 billion by 2030. Widespread adoption of AI will require energy-intensive ‘hyperscale’ data centres, which typically involve power demands of over 100 megawatts. EY analysis suggests that the concentration of the UK’s limited transmission network capacity around London could be a constraint to scaling AI tools, and the associated productivity and economic growth opportunities, across the country.  

The EY 2025 Regional Economic Forecast assessed existing UK substations based on ‘demand headroom’, or their capacity to accommodate fluctuations in electricity consumption. This analysis found that the majority of UK substations are not equipped to accommodate a hyperscale data centre, with only four out of 4,000 UK substations possessing the minimum demand headroom of over 100megawatts. Three out of these four substations are located in London, with the fourth located in the West Midlands.

The UK’s fastest growing towns and cities

The EY Regional Economic Forecast predicts that Reading will be the UK’s fastest-growing location over the next three years with average annual GVA growth of 2.2%. Reading’s position on the M4 corridor has helped it to establish a significant knowledge-based economy that should continue to support its growth. Reading’s professional services and technology sectors are predicted to see average annual GVA growth of 2.8% and 2.9% respectively over the next three years.

Manchester (2.1%) Cambridge (1.9%) and Bristol (1.9%) closely follow behind Reading for forecasted average annual GVA growth over the next three years. These cities have high concentrations of professional services activity and Manchester (2.8%), Cambridge (2.9%) and Bristol (2.6%) are all expected to see the sector’s average annual GVA growth increase over the next three years, supporting their local economies.