The London Economy

Justine Lovatt - LCCI Economist

22 May 2003

Introduction

• Most government London economic data stops in 1999.

• Chamber runs London Economy Research Programme – NIESR London model and London Economic Review

• Chamber London Monitor business confidence surveys

Economic Growth Forecasts

London’s Economic Growth

• NIESR forecast 1.9% rise in London’s GDP in 2002 and 2.4% rise in 2003.

• Similar to ONS UK figure of 1.8% for 2002 and NIESR forecast for UK of 2.2% for 2003.

• Like the UK London has moderate growth but is not in recession.

London/UK GDP 1998-2005

6.5%

3.3%

1.5%

2.2%

4.4%

3.1%

1.6%1.8% 1.9%

1.3%

2.4% 2.2%2.2%

2.8%3.1% 2.9%

0%

1%

2%

3%

4%

5%

6%

7%

1998 1999 2000 2001 2002 2003 2004 2005

Annual Change in London and UK GDP 1998 to 2005 (1995 Prices)

London GDP (Residents) UK GDP

High Growth Sectors

NIESR London Model forecasts for 2003:

• Construction 6% growth due to property market boom/public sector investment.

• Public sector 3.5% growth forecast.

• Wholesale and retail forecast to grow 3.4%, down from 4.1% in 2002.

Weak Sectors

NIESR London Model forecasts for 2003:

• Manufacturing forecast to grow by only 0.6% in 2003 after falling 4.5% in 2002.

• Finance forecast to grow by just 1.3% in 2003 after not growing in 2002, largely due to Stock Market falls.

Effects of Stock Market Falls

• On 12 March FTSE 100 fell to a near 8-year low to below half its 1999 peak.

• 3½ years of Stock Market falls have led to City job losses and closure of many company final salary pension schemes.

• Difficulty raising money via the Stock Market has contributed to low business investment.

London Growth in 2003

• NIESR forecast London to grow by 2.4% in 2003, up from 1.9% in 2002.

• There are risks to NIESR’s London’s growth forecast . . .

Risks To The Forecasts

• Risk of property price slowdown.

• Equity market not increasing slowly.

• Declining business confidence.

• Central London issues: war/terrorism affecting tourism, Central line closure and congestion charging.

Housing Market Fall Scenario

A scenario was run to show the impact of a 20% fall in house prices by Q4 2003:

• Consumption would be 0.8% lower in London than base forecast in 2003.

• GDP growth in London would be 0.5% lower in 2003 and a further 0.5% lower in 2004 than the base forecast.

Tourism in London

• London Tourist Board (LTB) forecast a 6% decline in tourist visits in 2003.

• LTB forecast a 14% decline in tourist expenditure in 2003 – a £1.2bn fall.

• Decline led by war in Iraq and terrorism fears. London’s share of all UK visits forecast to fall though still 46% in 2003.

LCCI Retail Survey

LCCI conducted survey of retailers in congestion zone in March.

• Three quarters of retailers in zone reported downturn in year-on-year trade.

• Half of these attributed this ‘all or mostly’ to congestion charge given a choice of five reasons.

Unemployment in London

Unemployment in London

• Unemployment in London is the highest in the UK at 6.8% (ILO).

• Since the mid-1990s unemployment has fallen in both the UK and London.

• There are currently 248,000 unemployed people in London.

Unemployment By UK Region

6.8%6.6%

6.1%5.9%5.5%

5.1% 4.9% 4.8%4.4%4.4%

3.9%3.6%

0%

1%

2%

3%

4%

5%

6%

7%

Lond

on

N. East

Scotla

nd

W. M

idlan

ds

N. Ire

land

N. West

Yorks

& H

umbe

r

Wales

E. Midl

ands

East

S. Eas

t

S. Wes

t

Regional ILO Unemployment December 02 to February 03

Unemployment by Area

Claimant Count by Area of London

2.4%

2.9%

3.2%

3.5%

3.7%

5.7%

0% 1% 2% 3% 4% 5% 6%

Outer London: South

Outer London: West & North West

Outer London: East & North East

Inner London: West

London Total

Inner London: East

The London Monitor

The London Monitor

• The London Monitor is an LCCI monthly survey of business confidence.

• Quarterly surveys are conducted in conjunction with the British Chamber of Commerce.

• Balances show % of respondents expecting an improvement less % expecting things to worsen.

UK Economy Predictions

Q1 2003 London Monitor Survey (conducted in March) showed business confidence for next year:

• Fallen to its lowest since September 11

for UK growth (balance of -51%).

• Lowest for over 5 years for London growth (balance of -16%).

London Economy Predictions

Business Confidence in London Growth (Next 12 Months)

-40%

-20%

0%

20%

40%

60%

80%

100%

Q398

Q498

Q199

Q299

Q399

Q499

Q100

Q200

Q300

Q400

Q101

Q201

Q301

Q401

Q102

Q202

Q302

Q402

Q103

Wei

ghte

d B

alan

ce (

+/-

)

Company Performance

Q1 2003 Survey showed:

• A balance of +1% said that their company’s output has risen over the past month.

• A balance of +29% said their company output will rise over next 12 months.

Conclusions

• NIESR forecast growth of 2.4% in 2003.

• Risks to this forecast include equity markets, inflated housing market, low business confidence and tourism.

• 2004 growth expected to be in-line with UK at around 2.2%.