the london economy justine lovatt - lcci economist 1 may 2003
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The London EconomyJustine Lovatt - LCCI Economist
1 May 2003
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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
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Economic Growth Forecasts
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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.
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London/UK GDP 1998-2005
Annual Change in London and UK GDP 1998-2005 (1995 Prices)
2.6%2.3%
2.8%2.4%
2.0%
4.2%
1.2%
6.4%
2.7%2.4%2.3%
1.5%1.7%
3.1%
2.2%
3.3%
0%
1%
2%
3%
4%
5%
6%
7%
1998 1999 2000 2001 2002 2003 2004 2005
London GDP - Workplace UK GDP
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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.
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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.
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Effects of Stock Market Falls
• On 12 March FTSE 100 fell to a near 8-year 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.
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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 . . .
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Risks To The Forecasts
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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.
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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.
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Unemployment in London
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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.
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Unemployment By UK Region
6.8%6.6%
6.1%5.9%5.5%
5.1% 4.9% 4.8%4.4%4.4%
3.9%3.6%
0%
1%
2%
3%
4%
5%
6%
7%
Lond
on
N. East
Scotla
nd
W. M
idlan
ds
N. Ire
land
N. West
Yorks
& H
umbe
r
Wales
E. Midl
ands
East
S. Eas
t
S. Wes
t
Regional ILO Unemployment December 02 to February 03
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Unemployment by Area
Claimant Count by Area of London
2.4%
2.9%
3.2%
3.5%
3.7%
5.7%
0% 1% 2% 3% 4% 5% 6%
Outer London: South
Outer London: West & North West
Outer London: East & North East
Inner London: West
London Total
Inner London: East
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The London Monitor
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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.
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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%).
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London Economy Predictions
Business Confidence in London Growth (Next 12 Months)
-40%
-20%
0%
20%
40%
60%
80%
100%
Q398
Q498
Q199
Q299
Q399
Q499
Q100
Q200
Q300
Q400
Q101
Q201
Q301
Q401
Q102
Q202
Q302
Q402
Q103
Wei
ghte
d B
alan
ce (
+/-
)
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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.
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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%.