The north-south divide has widened markedly in recent years with the rapidly expanding service sectors of London and the south-east responsible for more than half the 2m increase in employment since 1995, according to a new report out today.

Regions heavily reliant on traditional manufacturing have been hit by sterling's strength, with industry's growth only around one tenth as fast as that of the service sector, said the forecasting group Cambridge Econometrics.

Its study found that government figures showing unemployment falling across the whole of the UK were misleading, with migration from run-down regions disguising the true picture.

"The divide between southern England and the rest of the country, which narrowed in the recession of the early 1990s, at least in terms of unemployment disparities, has opened further during recent years," the report concluded. "The contrast between growth in southern England and the other regions is stark."

It added that the gulf was likely to grow wider in 2002, with all regions seeing slower expansion but the south of England and Northern Ireland were expected to outpace the rest of the country and the east midlands and the north-east - both highly dependent on manufacturing - were expected to be the weakest performers.

Between 1995 and 2001, London, the south-east and the east of England grew by an estimated 24%, compared to a national average of 17%.

No other region enjoyed growth higher than the national average, with the two-speed economy favouring the service sector-dominated south of England and hitting the manufacturing heartlands of the midlands, the north, Scotland and Wales. The north east grew by just 5% between 1995 and 2001, Scotland by 9%, the north west and Wales by 11%.

"The restructuring of the economy from manufacturing to services has continued over this period, driven partly by sterling's strength against European countries: for the UK as a whole manufacturing grew by just 2.75% compared with growth of over 25% in services." Even within manufacturing, there was a disparity in growth rates, with the hi-tech bias of southern England ensuring faster expansion than other regions.

The study said that the north-south gap was even more apparent when measured by employment. It found that 623,000 net jobs were created in London, with a further 510,000 in the south-east, but increases of only 11,000 in Scotland and 10,000 in the north-east.

Five regions - the east midlands, Yorkshire and Humberside, the north-east, Wales and Scotland - now have fewer full-time male jobs than in 1995, although female full-time employment has risen in every region.



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