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London’s Economy Today
Issue 89 | January 2010
In this issue
UK finally crawls out of
recession with extremely
weak growth but inflation
jumps higher ....................1
Latest news ......................1
Economic indicators .........5
UK finally crawls out of recession
with extremely weak growth but
inflation jumps higher
by Christopher Lewis, Senior Economist, Gordon Douglass, Economist, and
Simon Kyte, Economist
In the fourth quarter of 2009 the UK finally, and only
just, emerged from the longest recession since quarterly
records began in the mid-1950s. Gross Domestic Product
(GDP) is initially estimated to have grown by a weaker than
expected 0.1 per cent in Q4 2009 (see Figure 1). It should
be emphasised that this is a preliminary estimate and is
likely to be revised later. During the whole of 2009 the UK
economy contracted by 4.8 per cent.
The UK economy has experienced an extremely deep and prolonged recession. The
third quarter of 2009 was the sixth and final consecutive quarter of contraction in
the UK economy. By this time GDP stood at 6.0 percentage points below its prerecession level. Output is unlikely to reach its pre-recession level for a few years
yet despite having increased slightly in Q4 2009. In the 1980s recession the final
quarter of economic contraction occurred five quarters after the recession began,
when GDP was 4.7 percentage points below the pre-recession level. The fifth
quarter also marked the final contraction of the 1990s recession when GDP was only
2.5 percentage points lower than it was prior to the recession.
Latest news...
‘Can economics learn from other social sciences?’ seminar
GLA Economics is organising this event as part of the Economic and Social
Research Council (ESRC) Social Science week. There will be short presentations
from a number of speakers on disciplines to which we think that economists as
a profession should be more open to than they are. This is particularly relevant
since standard financial economic models are at least partly to blame for the
recent crisis.
The event will take place on the afternoon of Thursday 18 March at City Hall.
Further information on this event will be available in due course but to register
your interest in attending please email [email protected]
Figure 1: UK
GDP Growth
%
12
10
8
6
2
4
2
0
-2
-4
-6
year-on-year % change
2009 Q1
2007 Q3
2006 Q1
2004 Q3
2003 Q1
2001 Q3
2000 Q1
1998 Q3
1997 Q1
1995 Q3
1994 Q1
1992 Q3
1991 Q1
1989 Q3
1988 Q1
1986 Q3
1985 Q1
1983 Q3
1982 Q1
1980 Q3
1979 Q1
1977 Q3
1976 Q1
1974 Q3
1973 Q1
1971 Q3
-8
1970 Q1
% change on previous quarter
Although the Q4 2009 data just about marks the official end of the recession
(unless the Q4 figure is revised downwards), there remain severe weaknesses in
the UK economy. A few sectors saw no growth in Q4 2009 including: business
services and finance; transport, storage and communications; and construction.
Public sector net borrowing needs to be reduced which is likely to require both
further taxation increases and public expenditure cuts. This is unlikely to make
for an economic environment that feels particularly positive for many people.
Neither does the positive boost to GDP from a slowdown in de-stocking. There
is also a risk that some quarters of GDP growth in 2010 could still be negative.
Investment intentions are still weak and consumers remain nervous. The first
quarter of 2010 has some particular challenges as the exceptionally bad weather
may have slowed any recovery and the return of VAT to its 17.5 per cent level
may have caused a shift in purchases to the fourth quarter of 2009.
As for London, it seems that it has performed relatively better during the
downturn than the UK as whole. However, as the UK economy slowly starts
to recover, London may do relatively worse in the initial stages of the upturn.
Confidence continues to ebb in the financial services industry, which plays a
larger role in London’s economy than in the rest of the UK’s.
Retail sector faces a difficult start to 2010
The UK retail sector had an upbeat run up to Christmas according to the British
Retail Consortium (BRC). Sales figures were helped by last minute Christmas
shopping and by strong online sales. BRC retail figures looked particularly
strong when compared with the poor figures for December 2008.
However, VAT being put back to 17.5 per cent on 1 January 2010 may well
have caused frenzied shopping in the early days of the post-Christmas sales
only to be followed by a lull in sales in early January. This is likely to have been
exacerbated by the heaviest snowfalls and lowest temperatures in the UK for
decades. Early data indicators from Experian suggest that the VAT increase
and snow has had a significant impact on shopping patterns in early 2010 with
overall shopper numbers in non-food retail stores on Sunday 10 January being
down 14 per cent on the equivalent Sunday last year.
London’s Economy Today | Issue 89
Source: Office for
National Statistics
UK inflation rises sharply and is expected to spike higher
over the next few months
UK RPI annual inflation rose to 2.4 per cent (see Figure 2), up from 0.3 per
cent in November, which was the biggest monthly rise in the annual rate since
1979. UK CPI annual inflation also surged in December to 2.9 per cent, a
jump of 1 percentage point on the November data, the biggest such rise that
has occurred since records began. The rise was also a much higher increase
in inflation than had been expected. This jump was caused by what the ONS
called a series of “exceptional events that took place in December 2008”. These
events in December 2008 included the temporary reduction in VAT to 15 per
cent, sharp falls in petrol prices and heavy discounting by stores to shift unsold
pre-Christmas stock, which was not replicated by similar events in December
2009. This makes it highly likely that, with VAT having risen back to 17.5 per
cent on 1 January 2010, CPI inflation will breach 3 per cent in January which
will necessitate Mervyn King writing a letter of explanation to the Chancellor. It
also increases the likelihood that the Bank of England will not expand further
its policy of quantitative easing in 2010. If higher inflation feeds through into
higher pay settlements then the Bank of England may even raise interest rates
a lot quicker than expected. This is also more likely to happen without a Budget
that delivers a credible plan for restoring the public finances to health. Any rise
in interest rates could well impair the fragile recovery severely.
5
4
3
2
1
0
-1
2009 Jul
2008 Jul
2009 Jan
2007 Jul
2008 Jan
2006 Jul
2007 Jan
2005 Jul
2006 Jan
2004 Jul
2005 Jan
2003 Jul
2002 Jul
2004 Jan
CPI
Obama proposes new bank regulations
On 21 January US President, Barack Obama, proposed significant restrictions
on the activities of banks in the US. The aim is to prevent future financial crises
but international agreement on such measures would seem to be the best way
forward. The plans, which need approval from Congress, would prohibit banks
using their own money in trades (proprietary trading), and would ban them from
owning hedge funds and private equity firms. The measures appear in many ways
to return to the principles enshrined in the Glass-Steagall Act that was abolished
in 1999. Stock markets reacted badly to the proposals, which could lead to
the break up of a number of banks including JP Morgan and Bank of America.
Shares in a number of banks fell heavily. The move also comes on the back of an
announcement on 14 January of a $117 billion levy over the next ten years that
was imposed on banks in the US to recoup money the US Government spent on
bailing out the financial services sector since Summer 2008.
London’s Economy Today | Issue 89
RPI
2003 Jan
2001 Jul
2002 Jan
2000 Jul
2001 Jan
1999 Jul
2000 Jan
1998 Jul
1999 Jan
1997 Jul
1998 Jan
1996 Jul
1997 Jan
1995 Jul
-2
1996 Jan
Source: Office for
National Statistics
6
%
1995 Jan
Figure 2: UK annual
inflation rates
Last data point is
December 2009
3
The economy faces many hurdles in 2010
4
London’s Economy Today | Issue 89
Although a global economic recovery is now underway the head of the IMF,
Dominique Strauss-Kahn, warned of the danger of a double dip recession
noting, “In most countries, growth is still supported by government policies”.
Meanwhile, the World Bank in its Global Economic Prospects 2010 forecasts
that “the global economic recovery that is now underway will slow later this year
as the impact of fiscal stimulus wanes”. Therefore, although the UK economy
is likely to continue to recover over the course of 2010, the ride is probably
going to be bumpy. For many individuals the economic situation will continue
to feel depressed with unemployment remaining high, taxation needing to rise,
public expenditure needing to be cut and the fear of higher interest rates. The
economy needs to rebalance with an increase in investment and net exports
whilst household and public sector expenditure is restrained. At some point the
huge monetary policy stimulus from quantitative easing and near zero-bound
interest rates also needs to be withdrawn (hopefully gently). The task of policy
makers will not be an easy one and it is hard to see at least the early years
of this decade not being ones of austerity. During the downturn the London
economy performed better than expected and relatively better than the UK as
a whole. However, during the initial recovery phase London could perform less
strongly than the UK.
Economic indicators
Decrease in moving average of
passenger numbers
The most recent 28-day period is from 15
November 2009 to 12 December 2009.
London’s Underground and buses had 268.1
million passenger journeys; 180.4 million by
bus and 87.6 million by Underground.
The moving average of passengers every
period decreased to 253.6 million from an
upwardly revised 253.7 million in the previous
period. The moving average for buses was
172.6 million. The moving average for the
Underground was 81.0 million.
The methodology used to calculate the
number of bus passenger journeys was
changed by TfL from 1 April 2007. For a
detailed explanation please see LET issue 58
(June 2007).
Passenger numbers
journeys (millions) adjusted for odd days
millions
200
5
180
160
140
120
100
80
60
London Underground
London Underground moving average
Bus (pre 1 April '07 method)
Bus moving average (pre 1 April '07 method)
2009/10
2008/09
2007/08
2006/07
2005/06
2004/05
2003/04
2002/03
2001/02
2000/01
1999/00
1998/99
1997/98
1996/97
1995/96
1994/95
1993/94
1992/93
40
Bus (new method)
Bus moving average (new method)
Source: Transport for London
Latest release: January 2010
Next release: February 2010
Decrease in average annual
growth rate of passengers
18
16
14
12
10
8
6
4
2
0
-2
-4
-6
-8
-10
-12
1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10
London Underground
Underground plus bus
Buses moving average
Latest release: January 2010
Next release: February 2010
Latest release: January 2010
Next release: February 2010
Buses
London Underground moving average
LU and buses moving average
%
Claimant count unemployment
% of working age population, seasonally adjusted
8
7
6
5
4
3
2
1
London
2009 Jan
2008 Jan
2007 Jan
2006 Jan
2005 Jan
2004 Jan
2003 Jan
2002 Jan
2000 Jan
1999 Jan
1998 Jan
1997 Jan
0
UK
Source: Claimant Count, Nomis
London’s Economy Today | Issue 89
Source: Transport for London
Claimant count unemployment
The percentage of the resident working age
population who are unemployed and claiming
Jobseekers’ Allowance (seasonally adjusted)
in London was 4.4% in December 2009.
There were 226,100 seasonally adjusted
unemployment claimants in London in
December compared with a downwardly
revised 227,700 in November.
There were 1,606,500 seasonally adjusted
unemployment claimants in the UK
in December 2009 compared with a
downwardly revised 1,621,700 in November.
%
20
2001 Jan
The moving average annual rate of growth
in passenger journeys decreased to -0.5%
from -0.3% in the previous period.
The moving average annual rate of
growth in bus passenger journey numbers
decreased to 1.0% from 1.2% in the
previous period.
The moving average annual rate of growth
in Underground passenger journey numbers
decreased to -3.4% from -3.3% in the
previous period.
Annual % change in passengers using London Underground and buses
adjusted for odd days
Annual output growth negative
in London, the South East and
the Eastern region
7
6
5
4
3
2
1
-1
-2
-3
-4
-5
-6
London
South East
2009 q1
2008 q1
2007 q1
2006 q1
2005 q1
2004 q1
2003 q1
2002 q1
2001 q1
2000 q1
1999 q1
1998 q1
1997 q1
1996 q1
1995 q1
1994 q1
1993 q1
1992 q1
1991 q1
1990 q1
1989 q1
1988 q1
1987 q1
1986 q1
1985 q1
1984 q1
-7
Eastern
Source: Experian Business Strategies
Annual employment growth
negative in London, the South
East and the Eastern region
Full-time equivalent employment in London, South East and Eastern Regions
year-on-year growth from quarterly figures
%
8
6
4
2
0
-2
-4
-6
London
South East
2009 q1
2008 q1
2007 q1
2006 q1
2005 q1
2004 q1
2003 q1
2002 q1
2001 q1
2000 q1
1999 q1
1998 q1
1997 q1
1996 q1
1995 q1
1994 q1
1993 q1
1992 q1
1991 q1
1990 q1
1989 q1
-8
Eastern
Source: Experian Business Strategies
Latest release: November 2009
Next release: February 2010
Annual house price inflation rises
House prices, UK and London
year-on-year growth from quarterly figures, seasonally adjusted data
%
House prices, as measured by the
Nationwide, were higher in Q4 2009 than in
Q4 2008 in both London and the UK.
Annual house price inflation in London was
7.0% in Q4 2009, up from -1.9% in Q3
2009.
Annual house price inflation in the UK was
3.4% in Q4 2009, up from -3.0% in Q3
2009.
30
20
10
0
-10
London
2009 q3
2009 q1
2008 q3
2008 q1
2007 q3
2007 q1
2006 q3
2006 q1
2005 q3
2005 q1
2004 q3
2004 q1
2003 q3
2003 q1
2002 q3
2002 q1
2001 q3
2001 q1
2000 q3
2000 q1
1999 q3
1999 q1
1998 q3
1998 q1
1997 q3
1997 q1
1996 q3
1996 q1
1995 q3
1995 q1
1994 q3
1994 q1
1993 q3
1993 q1
1992 q3
1992 q1
1991 q3
1991 q1
1990 q3
1990 q1
1989 q3
-20
UK
Source: Nationwide
London’s Economy Today | Issue 89
40
1989 q1
Latest release: January 2010
Next release: April 2010
6
0
Latest release: November 2009
Next release: February 2010
London’s annual employment growth
remained at -1.5% in Q2 2009 (the figure
for Q1 2009 has been revised down from
-0.6% to -1.5%).
Annual employment growth in the South
East decreased to -2.8% in Q2 2009 from
-2.7% in Q1 2009.
Annual employment growth in the Eastern
region decreased to -1.6% in Q2 2009 from
an upwardly revised -1.4% in Q1 2009.
%
8
1983 q1
London’s annual growth in output
decreased to -5.3% in Q2 2009 from a
downwardly revised -4.0% in Q1 2009.
Annual output growth in the South East
decreased to -5.0% in Q2 2009 from a
downwardly revised -4.4% in Q1 2009.
Annual output growth in the Eastern
region decreased to -4.8% in Q2 2009
from a downwardly revised -4.5% in Q1
2009.
Real GVA growth in London, South East and Eastern Regions
year-on-year change
London’s business activity
continues to increase
index
Business activity in London
seasonally adjusted index (50 indicates no change on previous month)
70
London firms increased their output of
goods and services in December 2009.
The Purchasing Managers’ Index
(PMI) of business activity recorded
61.5 in December compared to 60.3 in
November.
A rate of above 50 on the index indicates
an increase in business activity from the
previous month.
65
60
55
50
45
Jan-09
Sep-09
May-09
Jan-08
Sep-08
Sep-07
May-08
Jan-07
May-07
Jan-06
Sep-06
May-06
Jan-05
Sep-05
Sep-04
May-05
Jan-04
May-04
Jan-03
Sep-03
May-03
Sep-02
Jan-02
Sep-01
May-02
Jan-01
May-01
Jan-00
Sep-00
May-00
Sep-99
Jan-99
Sep-98
May-99
Jan-98
May-98
Jan-97
New orders in London rising
Sep-97
40
May-97
Latest release: January 2010
Next release: February 2010
7
London
Source: Markit Economics
New orders in London
seasonally adjusted index (50 indicates no change on previous month)
index
70
December 2009 saw a rise in new orders
for London firms.
The PMI for new orders recorded 61.7
in December compared to 59.5 in
November.
A rate of above 50 on the index indicates
an increase in new orders from the
previous month.
65
60
55
50
45
40
Latest release: January 2010
Next release: February 2010
Jan-97
May-97
Sep-97
Jan-98
May-98
Sep-98
Jan-99
May-99
Sep-99
Jan-00
May-00
Sep-00
Jan-01
May-01
Sep-01
Jan-02
May-02
Sep-02
Jan-03
May-03
Sep-03
Jan-04
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
35
London
Source: Markit Economics
Level of employment in London
seasonally adjusted index (50 indicates no change on previous month)
The PMI shows that the level of
employment in London firms decreased in
December 2009.
The PMI for the level of employment was
46.6 in December compared to 45.8 in
November.
A rate of below 50 on the index indicates a
decrease in the level of employment from
the previous month.
65
60
55
50
45
40
35
Jan-97
May-97
Sep-97
Jan-98
May-98
Sep-98
Jan-99
May-99
Sep-99
Jan-00
May-00
Sep-00
Jan-01
May-01
Sep-01
Jan-02
May-02
Sep-02
Jan-03
May-03
Sep-03
Jan-04
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Latest release: January 2010
Next release: February 2010
index
London
Source: Markit Economics
London’s Economy Today | Issue 89
London employment still falling
Synovate Retail Traffic Index
has weak start to the new year
Greater London Retail Traffic Index 2010 compared
with 2009, 2008, 2007, 2006 and 2005
Index
160
150
The Synovate Retail Traffic Index of
shoppers in London was 87.7 in the
second week of January compared to
95.0 in the previous week.
The index has started 2010 below 2009
levels.
Synovate’s Retail Traffic Index measures
the number of shoppers and does not
necessarily reflect the level of spending.
140
130
8
120
110
100
90
80
70
60
Latest release: January 2010
Next release: February 2010
Surveyors expect house prices to
increase
The RICS survey shows that surveyors
expect house prices to increase over
the next three months in London and in
England and Wales.
The net house price expectations balance
in London was 16 in December 2009,
down from 22 in November 2009.
For England and Wales, the net house
price expectations balance was 13
in December 2009, down from 27 in
November 2009.
Latest release: January 2010
Next release: February 2010
Mar
Apr
May
2005
Jun
Jul
Aug
2006
2007
2008
Sep
2009
Oct
Nov
Dec
2010
Source: Synovate
RICS housing market survey
net balance in London and in England and Wales; seasonally adjusted data
100
80
60
40
20
0
-20
-40
-60
-80
-100
London net balance
England and Wales net balance
Source: Royal Institution of Chartered Surveyors
RICS housing market survey
house price expectations; net balance in London, and in England and Wales;
seasonally adjusted data
100
80
60
40
20
0
-20
-40
-60
-80
-100
London net balance
England and Wales net balance
Source: Royal Institution of Chartered Surveyors
London’s Economy Today | Issue 89
The RICS survey shows a positive net
balance of 60 for London house prices
over the past three months to December
2009. This net balance is down from an
upwardly revised 69 in November 2009.
Surveyors reported a positive net house
price balance for England and Wales of
30 in the past three months to December
2009, down from 35 in November 2009.
London’s net house price balance is
above that of England and Wales.
Feb
Jan-00
Apr-00
Jul-00
Oct-00
Jan-01
Apr-01
Jul-01
Oct-01
Jan-02
Apr-02
Jul-02
Oct-02
Jan-03
Apr-03
Jul-03
Oct-03
Jan-04
Apr-04
Jul-04
Oct-04
Jan-05
Apr-05
Jul-05
Oct-05
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Surveyors report that house
prices are rising
Jan
Jan-00
Apr-00
Jul-00
Oct-00
Jan-01
Apr-01
Jul-01
Oct-01
Jan-02
Apr-02
Jul-02
Oct-02
Jan-03
Apr-03
Jul-03
Oct-03
Jan-04
Apr-04
Jul-04
Oct-04
Jan-05
Apr-05
Jul-05
Oct-05
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Latest release: Mid-January 2010
Next release: Weekly
Additional information
Data sources
Tube and bus ridership
GDP/GVA growth
London airports
Unemployment rates
Transport for London on 020 7222 5600
or email: [email protected]
Experian Business Strategies on 020 7630 5959
www.caa.co.uk
www.statistics.gov.uk
9
Glossary
Acronyms
ABI
BAA
BCC
BITOA
CAA
CBI
DCLG
EBS
GDP
Annual Business Inquiry
British Airports Authority
British Chamber of Commerce
British Incoming Tour Operators Association
Civil Aviation Authority
Confederation of British Industry
Department for Communities and
Local Government
Experian Business Strategies
Gross domestic product
GVA
ILO
IMF
LCCI
LET
MPC
ONS
PMI
PWC
RICS
Gross value added
International Labour Organisation
International Monetary Fund
London Chamber of Commerce and Industry
London’s Economy Today
Monetary Policy Committee
Office for National Statistics
Purchasing Managers’ Index
PricewaterhouseCoopers
Royal Institution of Chartered Surveyors
London’s Economy Today | Issue 89
Civilian workforce jobs
Measures jobs at the workplace rather than where workers live. This indicator captures total
employment in the London economy, including commuters.
Claimant count unemployment
Unemployment based on the number of people claiming unemployment benefits.
Employee jobs
Civilian jobs, including employees paid by employers running a PAYE scheme. Government
employees and people on training schemes are included if they have a contract of employment.
Armed forces are excluded.
Gross domestic product (GDP)
A measure of the total economic activity in the economy.
Gross value added (GVA)
Used in the estimation of GDP. The link between GVA and GDP is that GVA plus taxes on
products minus subsidies on products is equal to GDP.
Tube ridership
Transport for London’s measure of the number of passengers using London Underground in a
given period. There are 13 periods in a year. In 2009/10 there are eleven 28-day periods, one
25-day period and one 32-day period. Period 1 started on 1 April.
Bus ridership
Transport for London’s measure of the number of passengers using buses in London in a given
period. There are 13 periods in a year. In 2009/10 there are eleven 28-day periods, one
25-day period and one 32-day period. Period 1 started on 1 April.
GLA Economics
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© Greater London Authority
January 2010
ISSN 1740-9136 (print)
ISSN 1740-9195 (online)
ISSN 1740-9144 (email)
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