The 2016 Good Growth for Cities index – which takes into account employment, health and income statistics – ranked Edinburgh behind Oxford and Reading.
Aberdeen was the only other Scottish city to feature in the top ten, coming in tenth behind Southampton, Bristol, Cambridge, Milton Keynes, Coventry and Swindon.
Meanwhile, Glasgow fell from 24th place to 29th but outperformed Newcastle, Birmingham and Sheffield.
The index, produced by financial consultants PwC and think tank Demos, looks at 11 factors seen by the public and businesses as key to economic success and wellbeing.
As well as jobs, health and income, these include housing affordability, commuting times, environmental factors and income inequality.
Despite performing well overall, Edinburgh scored poorly in terms of the average commute time to and from work.
While Inverness was not included in the main index and therefore not ranked, it was found to have performed particularly well, with above average results in measures including jobs, transport, skills, income distribution and environment.
The report found that Scottish cities overall scored particularly high on elements including skills, jobs and income, but were mostly around or below average in terms of health, owner occupation and new businesses.
Cllr Gavin Barrie, Edinburgh City councils’s economy leader, said: “We’ve been working hard to promote the growth of inward investment, focusing on key sectors and areas of the city and encouraging footfall in our city centre. The New Waverley and Haymarket developments are well under way and work has just started on the £1 billion Edinburgh St James development.
“We’re keen to build on this success, and are currently negotiating with the UK and Scottish Governments on a City Region Deal. I’m thrilled Edinburgh is Scotland’s leading city in the index again this year and is also third out of all 42 cities included.”
Paul Brewer, PwC government and infrastructure partner for Scotland, said: “It was only a few years ago that Aberdeen was ranked second in the report but has now slipped to 10th place as the impact of the reorganisation of the North Sea oil and gas industry takes effect.
“As our recent Sea Change report highlighted, there is still opportunity in the oil basin but the city also needs to continue to explore other options to future-proof itself. Aberdeen does demonstrate its resilience as the only Scottish city to perform above average in terms of new businesses per head.”
Good Gowth Cities index 2013-2015
7. Milton Keynes