The London EconomyJustine Lovatt - LCCI Economist

November 2002

LCCI Economic Research

• London Economy Research Programme – NIESR econometric model forecasts and quarterly London Economic Review

• London Monitor business confidence surveys

London’s GDP in 2002

• London’s GDP is forecast to rise by only 1.5% in 2002.

• This is above NIESR’s forecast for the UK economy of 1% for 2002.

• London is suffering from an economic downturn but is not in recession.

London/UK GDP 1998-2005

Annual % Change in London/UK GDP 1998-2005 (1995 Prices)

0%

1%

2%

3%

4%

5%

6%

7%

1998 1999 2000 2001 2002 2003 2004 2005

London GDP (Residents) UK GDP

London’s Economic Downturn

• Unemployment in London is now the highest in the UK at 7.5%.

• The only sector to have increased employment in the last 12 months is the public sector.

• The City has been hit by Stock Market falls. Finance output forecast to fall 0.6% in 2002.

• Manufacturing is in recession as in the UK with output forecast to fall 3.8% in 2002.

Unemployment By UK Region

7.5%

6.6%6.3% 6.2% 6.2% 6.0% 5.8%

5.4%4.8%

4.1% 4.1% 4.0%

0%

1%

2%

3%

4%

5%

6%

7%

8%

Lond

on

Scotla

nd

N Irela

nd

West

Mid

lands

North

Eas

t

North

West

Yorks

& H

umbe

r

Wales

East M

idlan

ds

South

Wes

t

South

Eas

tEas

t

ILO Unemployment by UK Region July to September 2002

Unemployment in London

• London unemployment is now 40% higher than UK unemployment.

• Unemployment has been higher in London than the UK over the past decade. Recently unemployment has risen faster in London than the UK.

• Since 1995 unemployment has fallen in both the UK and London.

London/UK Unemployment 1997-2002

London and UK ILO Unemployment 1997-2002

4%

5%

6%

7%

8%

9%

10%

Jul-S

ep 1

997

Oct

-Dec

199

7

Jan-

Mar

199

8

Apr-J

un 1

998

Jul-S

ep 1

998

Oct

-Dec

199

8

Jan-

Mar

199

9

Apr-J

un 1

999

Jul-S

ep 1

999

Oct

-Dec

199

9

Jan-

Mar

200

0

Apr-J

un 2

000

Jul-S

ep 2

000

Oct

-Dec

200

0

Jan-

Mar

200

1

Apr-J

un 2

001

Jul-S

ep 2

001

Oct

-Dec

200

1

Jan-

Mar

200

2

Apr-J

un 2

002

Jul-S

ep 2

002

London ILO unemployment UK ILO unemployment

A Two-Speed Economy

• The London economy, like the UK, is operating at two-speed with service sector growth much higher than industrial production.

• In 2001 and 2002 the industrial production sector has been in recession whilst the service sector has recorded healthy growth.

A Two-Speed Economy

6.5%

4.0%

2.5%

-0.5%

2.7%

0.6%

2.9%

-2.1%

1.5%

-3.2%

2.8%1.9%

2.9%2.3%

2.8%2.6%

-4%

-3%-2%-1%

0%1%2%3%

4%5%6%7%

1998 1999 2000 2001 2002 2003 2004 2005

Annual % Change in Services and Industrial Production Indices

Service Sector Index (1995=100) Industrial Production Index (1995=100)

London Growth To Improve

• The London Model forecasts that growth will pick up from 2003.

• London is forecast to grow by 2.8% in 2003 compared to 1.5% in 2002.

• But there are threats to London’s economic growth . . .

Threats To The Economy

• More Stock Market falls or housing market crash – both will reduce consumer spending.

• War with Iraq – oil price etc

• Public sector wage demands e.g. firefighters strike for 40% rise

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

Q3 2002 Survey predictions for next year:

• A balance of +5% expect UK economic growth to improve.

• The balances for UK inflation (-23%), interest rates (-12%) and unemployment (-44%) are all negative (negative denotes to worsen/rise).

UK Economy Predictions

Expectations for UK Economy for next 12 Months Q2 and Q3 2002 Balances

-42%

-67%

-40%-44%

+24%

-12%-23%

+5%

-80%

-60%

-40%

-20%

0%

20%

40%

EconomicGrowth

Inflation Interest Rates Unemployment

Bal

ance

Q2 2002 Q3 2002

London Economy Today

Q3 2002 Survey showed economic downturn:

• A balance of only +5% said that their company’s output has increased over the past month.

• This is the worst result since the November 2001 survey.

London Economy Predictions

Q3 2002 Survey predicts improvement in the short to medium term:

• A balance of +27% expected growth to improve in London.

• A balance of +59% expected their business to improve.

London Business on Politics

• In our October LM survey 77% of businesses rated Blair’s leadership skills highly.

• Only 15% rated Iain Duncan-Smith highly.• Even Red Ken had a higher rating at 35%.• Bush was rated highly by 44% of businesses. • 66% supported an attack on Iraq, most only

with UN approval.

Conclusions

• Economic growth is weak in London at 1.5% in 2002. Manufacturing and finance are currently in recession.

• Economic growth should now improve.

• Possible threats to this are housing market/Stock Market falls, war with Iraq and public sector strikes.