The economic impact of Covid will leave Boris Johnson’s government with a costly “double challenge” to level-up the north and Midlands while protecting the affluent towns and cities in southern England suffering most job losses, according to a report.

Warning that the prime minister’s election promise to rebalance Britain’s lopsided economy had been made four times harder by the pandemic, the Centre for Cities said a dual approach to the post-Covid recovery was required.

In its annual study of the UK’s major urban areas, the independent thinktank said Covid had created a new challenge in the south and added significantly to the scale of the existing challenges in the north and Midlands.

London and the south-east has been disproportionately hit by job losses during the crisis, according to the research, which warned ministers that rapid action would be needed to avoid “levelling down” these places. At the same time, places across the north and Midlands need support to recover from Covid-19 and also to go further to match pre-pandemic levels in the south.

Birmingham, Hull and Blackpool face the biggest levelling-up challenges, according to the report. However, London, Crawley and Slough are among the prosperous places of concern following their reliance on businesses hit hardest by lockdowns and physical-distancing restrictions.

Unemployment has increased by more than 114% since the pandemic struck, with more than 2.6 million people across the UK now claiming unemployment-related benefits.

Before the crisis, 36 cities and large towns – 25 of which are located in the north and Midlands – had an above-average claimant count rate, in a reflection of the economic challenges facing places at the heart of the levelling-up agenda. Bringing them in line with the national average would have meant almost 170,000 fewer people claiming unemployment-related benefits. According to the report, this has now increased to 634,000 – meaning the task of levelling-up has become four times harder.

In response to the pandemic, the Centre for Cities said the chancellor, Rishi Sunak, needed to make permanent the £20 per week increase in the value of universal credit launched at the start of the crisis. Despite intense opposition, the government plans to cut universal credit at the end of March. It also said support for the hospitality sector – potentially through a renewed Eat out to help out scheme once the health situation is safe – was also required.

However, the thinktank warned that acting to prevent further economic damage by Covid-19 was not the same as levelling up. Once the health crisis ended, it said ministers would need to spend extra money on further measures to level up, including on education and transport infrastructure.

Andrew Carter, the chief executive of the Centre for Cities, said: “Covid-19 has made the government’s pledge to level up the north and Midlands much harder. It was promised on the assumption that places in the south would remain prosperous. Covid-19 has shaken this assumption, with cities ranging from London to Crawley now struggling.

“Levelling up the north and Midlands and stopping the south’s levelling down will not be cheap and will require more than short-term handouts. Government support and investment for new businesses in emerging industries will be essential, as will spending on further education to train people to do the good-quality jobs created.”