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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 Annual Change in London and UK GDP 1998 to 2005 (1995 Prices) 7% 6.5% 6% 5% 4% 4.4% 3.3% 3% 3.1% 2.2% 2% 2.8% 2.4% 2.2% 2.2% 3.1% 2.9% 1.8% 1.9% 1.6% 1.3% 1.5% 1% 0% 1998 1999 2000 2001 2002 London GDP (Residents) 2003 UK GDP 2004 2005 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 8year 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 Regional ILO Unemployment December 02 to February 03 6.8% 7% 6% 5% 6.6% 6.1%5.9% 5.5% 5.1% 4.9% 4.8% 4.4%4.4% 3.9% 4% 3% 2% 1% Lo nd o N n .E a Sc st W otla .M n id d la nd N s .I re la nd Yo N rk .W s e & H st um be r W al E. M es id la nd s Ea s S. t E a S. st W es t 0% 3.6% Unemployment by Area Claimant Count by Area of London Inner London: East 5.7% London Total 3.7% Inner London: West 3.5% Outer London: East & North East 3.2% Outer London: West & North West 2.9% Outer London: South 0% 2.4% 1% 2% 3% 4% 5% 6% 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) 100% Weighted Balance (+/-) 80% 60% 40% 20% 0% -20% -40% Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 98 98 99 99 99 99 00 00 00 00 01 01 01 01 02 02 02 02 03 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%.