The London EconomyJustine Lovatt - LCCI Economist

1 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 GDP in 2002

• NIESR forecast London’s GDP rose by 2.4% in 2002.

• Above the Office for National Statistics figure for the UK of 1.8% for 2002.

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

London/UK GDP 1998-2005

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

2.6%2.3%

2.8%2.4%

2.0%

4.2%

1.2%

6.4%

2.7%2.4%2.3%

1.5%1.7%

3.1%

2.2%

3.3%

0%

1%

2%

3%

4%

5%

6%

7%

1998 1999 2000 2001 2002 2003 2004 2005

London GDP - Workplace UK GDP

High Growth Sectors in 2002

NIESR London Model forecasts for 2002:

• Construction 7.6% growth due to the property market boom.

• Wholesale and retail 4.1% growth.

• Public sector and hotels and catering also performed well.

Weak Sectors in 2002

NIESR London Model forecasts for 2002:

• Manufacturing was in recession, as in the UK, with output falling by 4.5%.

• Finance grew by just 0.4% in 2002 caused largely by 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 problems for 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 2.8% in 2003, up from 2.4% in 2002.

• The forecast is optimistic and there are risks to NIESR’s London’s growth forecast . . .

Risks To The Forecasts

Risks To The Forecasts

• Iraq war impact to be added. Estimates vary from positive IoD to £1bn cost GLA.

• Tax rises: 1% NI, council tax, business rates.• Risk of property price slowdown.• Central line closure, congestion charging and

terrorism.• Potential threat of SARS.

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.

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 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 increased over the past month.

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

Conclusions

• NIESR forecast growth of 2.8% in 2003. • This forecast is optimistic and may soon

be downgraded due to the Iraq war, tax rises, falling business confidence etc.

• Risk from inflated housing market.• 2004 and 2005 growth expected to be in-

line with UK at around 2.5%.