Cheltenham has a deserved reputation as one of the best places to live in England.

Its Regency architecture and parks and gardens are world famous, its shopping is second to none and it boasts the one of the finest cultural calendars in the country.

And its growth has been almost non-stop since its first spa was discovered almost 300 years ago, in which time its population has rocketed from 1,500 to more than 110,000 today.

But just as Cheltenham underwent a huge period of transition in the 18th Century, it now faces a unique set of challenges in the 21st.

Competition from neighbouring cities, threats to its biggest industries, lack of development space and an aging and reducing population threaten to undermine its glittering reputation.

The town is at a crossroads where it must look to the future, while maintaining its strong historical identity.

One of its greatest challenges is to remain a vibrant shopping centre in the face of competition from Gloucester, Bristol and Birmingham.

Two years ago, in its Provisional Urban Economic Strategy for Gloucestershire, the county council warned Cheltenham could become a mere satellite of Bristol, if the city's growth continued.

While Cheltenham's Promenade is one of the finest shopping streets in Britain, other parts of the town are in serious need of investment, according to Jonathan Leamon, of Cheltenham Chamber of Commerce.

He said: "Cheltenham's reputation is justified, but that doesn't mean it is all perfect.

"Lower High Street, for example, is an Achilles heel for the town.

"One of Cheltenham's big issues is transport, and we are pushing for the opening of the Honeybourne Line as a tram route. If we can set up a scheme in which the line stretches from Cheltenham Railway Station, through the town centre to the racecourse, we can reduce road traffic, because people can park outside of town, and with stations on the tram at strategic spots, like lower High Street, regeneration could easily be sparked."

The presence of GCHQ and big businesses including Kraft, Chelsea, Endsleigh, Spirax Sarco and GE Aviation have attracted a highly skilled and motivated workforce.

Employment is high at 58,500, with an unemployment rate of just 1.9 per cent.

But its three biggest industries – tourism, finance and manufacturing – all face challenges.

The credit crunch has struck at finance, which has seen consistent growth in recent years to 26 per cent of the town's gross value added.

But manufacturing, until recently its biggest employer, has suffered as companies such as GE Aviation move jobs elsewhere.

County and nationwide studies predict that manufacturing employment in the sector could fall by almost a quarter by 2020.

Tourism employs more than 15 per cent of Cheltenham's working population, but if fewer people live and work in the town, the leisure and retail elements of the sector could be badly hit.

Small businesses also make up a significant part of Cheltenham's economy, with 20,000 employed by companies of 50 or fewer people.

The town also suffers from a lack of development space, both for housing and industry.

Barrie Stowe, from Cheltenham Civic Society, said: "The lack of space is an issue. There are a large number of Regency buildings which are rightly listed and safeguarded from interference by English Heritage, while Cheltenham is surrounded by green field sites, which can't be developed.

"This is why we have problems with so-called garden grabbing."