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The London Economy Justine Lovatt - LCCI Economist 19 February 2003 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 have risen by 2.4% in 2002. • This is above the latest Office for National Statistics (ONS) figure for the UK economy of 1.7% for 2002. • Like the UK London has only moderate growth but is not in recession. London/UK GDP 1998-2005 Annual Change in London and UK GDP 1998-2005 (1995 Prices) 7% 6% 5% 4% 3% 2% 1% 0% 1998 1999 2000 2001 2002 London GDP - Workplace 2003 UK GDP 2004 2005 Effect of Stock Market Falls • The FTSE 100 fell to a 7 year low to 3,481 on 27 January – half its peak. • Over 3 years of Stock Market falls has led to extensive job losses in the City. • Companies have been affected via final salary pension schemes. • Difficulty raising money via the Stock Market has contributed to low business investment. Manufacturing Recession • London manufacturing is in recession, as in the UK, with output forecast to have fallen 4.5% in 2002 in London. • The manufacturing sector accounts for half the share of GDP as in the UK. • Therefore the recession has less overall effect on London economy. Strong Sectors of Economy (1) • Construction is forecast to have grown by 7.6% in 2002. • The sector is strong due to the property market boom. • House prices rose by 19.4% in the year to Q4 2002 according to the Halifax. They have doubled in the past 5 years. Strong Sectors of Economy (2) • Wholesale and retail is forecast to have grown by 4.1% in 2002. Consumption is high due to record low interest rates and high property prices. • Hotels and catering and public sector also performed well in 2002 Unemployment in London • In the past year London unemployment has fallen joint fastest in the UK. • But unemployment in London is still the second highest in the UK. • Since the mid-1990s unemployment has fallen in both the UK and London. Change in Unemployment Change in ILO Unemployment Rate Year to Oct-Dec 2002 0.6% 0.6% 0.4% 0.2% 0.5% 0.3% 0.2% 0.2% 0.1% 0.0% -0.2% -0.4% -0.6% -0.4% -0.5% -0.6% -0.7% So ut h So E u t as t h W N or es t Ea th Ea st s M id t la nd s W es Ea Yo t M s rk i dl t a s n N & H ds or th um be er n Ire r N or lan d th W e Sc st ot la nd W al e Lo s nd on -0.8% -0.1% -0.7% Unemployment By UK Region ILO Unemployment by Region October-December 2002 6.9% 7% 6% 5% 4% 6.6% 5.9% 5.5% 5.5% 5.2% 4.8% 4.8% 4.6% 4.0% 3.9% 3.9% 3% 2% 1% N .E a Lo st nd Sc on W otla .M n id d la nd N s .I re la nd W al es Yo N .W rk s e & H st um E. be M id r la n S. ds W es t Ea s S. t E as t 0% London Growth in 2003 • London is forecast to grow by 2.8% in 2003 compared to 2.4% in 2002. • But there are threats to London’s economic growth . . . Threats To The Economy • House price falls which would impact economy via reduced consumer spending. • Continued Stock Market falls again via reduced consumer spending. • War with Iraq via oil prices, uncertainty. 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. 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 Q4 2002 survey predictions for next year: • A balance of +12% expect UK economic growth to improve. • The balances for UK inflation (-25%), interest rates (-32%) and unemployment (-52%) are all negative (negative denotes to worsen/rise). UK Economy Predictions Expectations for the UK Economy for next 12 months - Q3 2002 and Q4 2002 Balances +12% 20% +5% 10% 0% -10% -12% -20% -23% -25% -30% -32% -40% -44% -50% -60% Economic Grow th Inflation Q3 2002 Interest Rates Q4 2002 Unemployment -52% London Economy Today Q4 2002 survey showed economic improvement: • A balance of +22% said that their company’s output has increased over the past month. • This is up from +5% in the Q3 survey. London Economy Predictions Q4 2002 survey predicts improvement in the short to medium term: • A balance of +15% expected growth to improve in London. • A balance of +39% expected their business to improve. Conclusions • 2002 growth was moderate in London at 2.4%. Manufacturing and finance had a bad year but other sectors had strong growth. • Growth is forecast to be 2.8% in 2003. • Possible threats to the economy are housing market/Stock Market falls or a war with Iraq.