Birmingham has been at the front of a “service sector boom”, according to new research from Oxford Economics, helping to drive job creation across the wider region.
The West Midlands combined authority (WMCA), which contains Britain’s second city, saw gross value added (GVA) in the services sector rise by an average of 4.2 per cent per year between 2020 and 2025, slightly ahead of the UK-wide average.
GVA measures the value of outputs minus the spending required to produce them. It is an important measure of economic productivity.
The sector was also a major source of employment growth in the region, adding a net 19,000 jobs over the same period. This equalled annual employment growth of 2.8 per cent, double the UK-wide average of 1.4 per cent.
Most of the expansion was concentrated in Birmingham, where employment rose by 5.1 per cent. Head office activities contributed the most to rising job numbers, while legal and accounting activities contributed the most to GVA growth.
Growth in the services sector was supported by investment in large-scale office developments such as Paradise Birmingham, Arena Central, and 103 Colmore Row, the latter being the highest office building in the UK outside London.
“Birmingham is at the centre of the service sector boom,” the analysts at Oxford Economics wrote.
The report noted that HS2 could further enhance the ‘agglomeration benefits’ for the city’s fastest-growing sectors, potentially adding £10bn to the city-region’s economy over the next 10 years.
Agglomeration benefits refer to the advantages that firms and workers get from locating near each other.
Foreign direct investment (FDI) has also been a crucial factor behind the region’s growth, according to recent research from the University of Birmingham and the city’s Chamber of Commerce.
The report said that Birmingham is set to become “the beating heart of a new economic era” as the West Midlands city continues to top the list for FDI outside of London, with 130 projects in 2024-25.
Manufacturing ‘particularly vulnerable’
Manufacturing remained an important part of the region’s economy, making up around 8 per cent of employment and 11 per cent of its GVA. However, shifting headwinds have left the sector “particularly vulnerable,” the analysts warned.
Manufacturing firms are grappling with tariff threats, strong international competition, and sluggish productivity, all of which could undermine growth in the region’s exports.
Despite these challenges, the Oxford Economics review identified “concrete growth opportunities” in the WMCA.
The report proposed targeted interventions to boost investment in crucial areas such as skills development, research and development, transport, and housing, arguing that well-designed policies in these areas could be the key to unlocking the city-region’s growth potential.
