THE North-South divide is finally closing as the economy booms in the North-East, the government revealed yesterday.

A Treasury study said growth rates were now higher across the North than in London and the South-East - reversing the trend of many decades.

The report is a big boost to Labour's attempts to convince supporters in its traditional heartlands that they are not being neglected in efforts to woo "Middle England".

Ironically, it comes little more than a week after Tony Blair sparked anger when he suggested that closing the North-South divide no longer mattered.

The Treasury had pledged by the end of this year to demonstrate progress on its long-standing aim to "reduce the persistent gap in growth rates between the regions".

Its public service agreement (PSA) target 2.3 measures growth value added (GVA) per head in London, the South-East and East, compared with the other six regions, including the North East.

Between 1990 and 2002, GVA in those three "leading" regions grew at 2.4 per cent annually, compared with 1.9 per cent in the six "lagging" regions - a difference of 0.5 per cent.

But, in 2003 and 2004, that trend was turned on its head, with GVA per head growth 1.1 per cent higher in the lagging regions - 2.3 per cent, compared with 1.2 per cent.

An appendix to this week's Pre-Budget Report reveals that the North-East boasted the highest growth at 2.6 per cent. In contrast, London's rate was only 0.6 per cent.

The study says the success is due to better job creation in the North and a narrowing of the gap in educational qualifications.

However, it warns that more measures are needed in next year's comprehensive spending review to ensure the PSA target, which covers the period from 2003 to 2012, is hit.

The study concludes: "There remains a significant challenge to address productivity differentials between the top three regions and the bottom six.

"It is too early to say whether this recent narrowing reflects a narrowing in underlying trend growth."

Last month, Mr Blair raised eyebrows when he said the gap between rich and poor within a region - rather than between the North and South - was the crucial issue.

It raised suspicions that the Government was about to abandon its pledge, because it believed it was impossible to prevent the South outstripping the North.

The study reveals just how big the wealth disparity still is. In the North-East, GVA per head is less than £14,000 - compared with more than £21,000 in London.