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 This is above the latest Office for National Statistics (ONS) figure for the UK economy of 1.7% for Like the UK London has only moderate growth but is not in recession.

London/UK GDP

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 The sector is strong due to the property market boom. House prices rose by 19.4% in the year to Q 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 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

Unemployment By UK Region

London Growth in 2003 London is forecast to grow by 2.8% in 2003 compared to 2.4% in 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 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 Q 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

London Economy Today Q 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 Q 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 Possible threats to the economy are housing market/Stock Market falls or a war with Iraq.