Download London Economic Briefing Bank of England Agency for

The London Economy
Justine 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)
7%
6.4%
6%
5%
4%
4.2%
3.3%
3%
3.1%
2.2%
2%
2.8%
2.7%
2.3% 2.3% 2.4% 2.6%
2.4%
2.0% 1.7%
1.2%
1.5%
1%
0%
1998
1999
2000
2001
2002
London GDP - Workplace
2003
UK GDP
2004
2005
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 8year 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
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%
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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 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 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%.