By Fátima Garcia Elena and Raquel Ortega Argilés
In this blog, we propose the integration of sectoral and regional approaches to economic planning in light of the latest iteration of the industrial strategy proposal by the UK government in November 2024[1].
While identifying critical sectors is crucial, stakeholders are increasingly advocating for analysing these industrial trends through spatial lenses, particularly through the concept of economic clusters. We argue that both approaches can provide a more comprehensive understanding of the economy when used in tandem. This integrated approach could potentially unlock new opportunities and foster balanced economic development. In this blog, we will dig into this issue by examining regional and sectoral trends in innovation, digitalisation, and productivity, demonstrating that regions and sectors are interdependent and should not be analysed or considered in isolation.
Diverging Correlations: Regions vs. Sectors
When analysing the relationship between digitalisation and innovation at the Mayoral Combined Authority (MCA)[2], our data shows/indicates a strong correlation of 0.938. This finding suggests that regions exhibiting higher levels of digitalisation are also more likely to serve as hubs of innovation. The underlying implication is that factors such as infrastructure, investment in research and development (R&D), and supportive local policy environments create synergies that promote both digitalisation and innovation. In contrast, the absence of these elements may result in certain regions lagging behind in terms of progress and development.
This finding aligns with previous research looking into the spatiality of Britain’s digital landscapes[3]. There is evidence of increasing regional polarisation regarding access to digital infrastructure, contributing to the unequal development of related economic practices. This analysis supports the notion that a region’s infrastructure influences the presence of digital and innovative industries. It is important to note that the relationship between spatial structures and local activities is not one-sided. While spatial structures certainly shape local activities, local actors also have the power to transform their regions. In deprived areas, for instance, a strong demand for digital infrastructure from key businesses could drive public investment. This not only benefits local communities but also helps bridge the digital divide, empowering local actors to play a significant role in regional development.
When shifting the analysis to the sectoral level using the sectors in the Industrial Strategy[4], the correlation drops significantly to 0.667. This weaker relationship suggests that while some industries are highly digitalised, they may not necessarily be at the forefront of innovation, and vice versa. For instance, industries such as defence and digital services score highly in both digitalisation and innovation, whereas sectors like advanced manufacturing may be digitally mature without displaying equivalent innovation practices.
Why Does the Perspective Matter?
To argue why perspective matters, we will analyse the best performing MCA and sector – London and Digital and Technology. London has the highest innovation and digital indexes, 1.35 and 1.47, respectively, while Digital and Technology are assigned 5.2 and 11.2. Likewise, these are the two groupings of economic actors that produce more Gross Added Value to the local economy[5].
Our findings suggest that the most productive sectors in London are those in the digital and tech fields, particularly in the life sciences and Fintech. Similarly, the Digital and Technology sector, which is predominantly located in urban areas with the necessary infrastructure and human capital, thrives when it shares spaces with other digital and innovative industries. This underscores the importance of developing complementary infrastructure in regions to foster the growth of digital and innovative industries.
Looking into London
MCA London generates an estimated GVA of £1.7 trillion, translating to £62,333 GVA per employee. This is an interesting finding, especially when considering that ONS figures estimate an approximate £71,273 average output per job at the UK level in 2023, and The Data City currently approximates a UK GVA per employee of £70,426. This finding suggests that there is a great disparity between the GVA generated by jobs in London, with a large majority that generates low GVA and a minority that contributes most to the total figures.
Looking into the sectors present in the area can help support the previous statement. The following two maps show the distribution of people employed and turnover. The bar charts represent the distribution of employees and turnover across Real-Time Industrial Classifications (RTICs), machine-learning-led industrial classifications focusing on the sectors highlighted in the Industrial Strategy and its segments.
Most of the best-performing RTICs are tightly related to digital and tech, highlighting the sector’s contribution to the area. The case of Fintech, which generates almost £200billion, is a perfect representation of the adaptation of digital technologies to existing, local foundational industries. While this is more likely to happen in London and for a critical industry like finance, this case showcases the seamless blending of traditional local economies with technology sectors and digital practice, creating new industry verticals with the potential to produce considerable value.
The rise of Fintech as a lucrative sector in London owes much to a large workforce focused on facilitating technologies such as Artificial Intelligence and Telecommunications. The reality that Artificial Intelligence stands out as the fast-growing tech segment employing the most people in London further indicates AI’s substantial influence on local economies. Similarly, associated industries like Cybersecurity, Software as a Service (SaaS), and Cloud Computing are proving to be strong players in revenue generation.
It is important to note, however, that other industries, like Net Zero or Life Sciences, also employ a considerable number of people in the region. Although they do not rank as the highest revenue-producing sectors, they are also the sectors for which more companies win InnovateUK awards.
Although InnovateUK grants are also awarded to companies in the previously discussed tech-sectors, environmentally friendly industries like Net Zero and CleanTech and life sciences-based sectors like Engineering Biology Applications count large numbers of successful companies. This trend suggests a prioritisation of digital and green sectors over others, illustrating current political discussions that position both industries as central to the UK’s development.
Looking into the Digital and Technology sector
The Digital and Technology sector has been defined according to the conversion table developed by The Productivity Institute and The Data City, which was shaped by input from policymakers and stakeholders[6]. It contributes £1.7trillion to the economy, has an average company growth rate of 4.7% and a GVA contribution per employee of approximately 56k[7]. The growth and opportunities related to this sector have led policymakers to highlight it as a critical sector for national economic growth.
The data shows that the digital economy is spatially linked to urban areas. The maps below showcase that the greatest concentrations of employment and turnover correspond to urban environments like London, Birmingham, Manchester, or Leeds. The sector needs stable and secure communication infrastructure to function, rendering rural areas with poor connectivity unsuitable for digital activities.
More rural MCAs like Tees Valley or York and North Yorkshire are being left behind by the sector, with significantly low aggregate values for people employed and turnover generated. These are also the regions with lower innovation (0.64 and 0.67) and digitalisation (0.66 and 0.74) indexes, and GVA (216Bn and 301Bn). This data further defines the relevance of digital infrastructure and the prevalence of related practices for regional growth.
This issue could be identified by funding bodies. The data shows that InnovateUK grants given to companies in the Digital and Technology sector are principally in urbanised areas. While this is only an expected conclusion considering the demographics of the data (most of the companies are already located in urban areas), we can see that the total value of the grants and the total number of companies that received a grant are considerably lower in the urban areas of more rural MCAs, like the Tees Valley.
Implications for Policy and Strategy
Invest 2035 focuses on eight critical sectors: technology, renewable energy, advanced manufacturing, health and life sciences, creative industries, financial services, infrastructure, and agriculture. It is essential to explore how various regions in the UK can support the growth of these sectors and, conversely, how these sectors can drive regional empowerment and development. By fostering collaboration between regional stakeholders and industry leaders, this initiative aims to reduce economic disparities across the UK and encourage a more balanced and sustainable pattern of economic growth.
This approach not only seeks to enhance the economic resilience of individual regions but also aims to create a more integrated national economy. Continuing the conversation about the importance of analytical perspectives—such as data-driven insights, regional strengths, and sector-specific opportunities—can significantly influence effective policymaking. Ultimately, informed policies can lead to improvements in everyday life for citizens, providing better job opportunities, higher living standards, and increased access to essential services.
[1] Invest 2035: the UK’s modern industrial strategy
[2]Garcia Elena, F., Ortega-Argiles, R. (2025) https://doi.org/10.48420/28213001.v1
[3]Dilworth et al. EPJ Data Science (2025) 14:19 https://doi.org/10.1140/epjds/s13688-025-00537-x
[4] Garcia Elena, F., Ortega-Argiles, R., Purdy, A. (2025). https://doi.org/10.48420/28263461.v2
[5] According to The Data City data on March 2025, estimated value.
[6] Garcia Elena, F., Ortega-Argiles, R., Purdy, A. (2025). https://doi.org/10.48420/28263461.v2
[7] According to The Data City data on March 2025
