“Junk Bond” Warning: UK Regions Still Struggling to Attract Investment Outside London
Despite years of government pledges to “level up” Britain, new research reveals that much of the UK remains financially unattractive to private investors. A study published in Fiscal Studies compares regional economies outside London to “junk bond” status—meaning investors view them as high risk with low return.
The analysis, compiled by top economic researchers, found that cities outside the capital face borrowing costs 250 to 300 basis points higher than London. These elevated costs, often seen in high-risk countries or failing corporations, make it harder for local governments and businesses to fund critical infrastructure, housing, or innovation.
London Still Dominates Financial Confidence
The research highlights that London continues to dominate when it comes to attracting private capital. Since the financial crash of 2008, regional banking has dwindled, leaving smaller cities without strong local lending systems. Most regional banks were absorbed by national institutions, centralising financial decision-making in London and further entrenching inequality.
Lead researcher Dr. David Nguyen stated:
“The financial gap between London and the rest of the UK is not just economic—it’s institutional. Investors simply don’t trust regional economies to deliver strong returns.”
What This Means for “Levelling Up”
The government’s much-touted “levelling up” agenda under former Prime Minister Boris Johnson and now continued under Prime Minister Keir Starmer aimed to rebalance the UK economy. Billions were allocated to local projects, but experts now argue that without private investment, public funding alone cannot shift the scales.
The report recommends rebuilding regional capital markets and supporting community-led finance, pointing to Germany’s Sparkassen system—local public banks designed to keep money circulating within communities—as a model.
Investors Are Wary
The “junk bond” analogy comes from the world of corporate finance, where companies seen as financially unstable pay higher interest to borrow money. Applying the same logic to UK cities paints a grim picture: areas like Sunderland, Blackpool, and Hull are being financially priced out of growth.
One solution proposed is to expand the British Business Bank’s mandate and allow it to provide credit guarantees for regional infrastructure and innovation zones. However, implementation remains slow.
The Bigger Picture
This issue is not just economic—it’s social and political. Widening inequality between London and the rest of the UK has fed political discontent for decades. Without bold reform, the risk is that regional frustration continues to grow, fuelling nationalism, disconnection from Westminster, and voter apathy.
