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The London EconomyJustine Lovatt - LCCI Economist
19 February 2003
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LCCI Economic Research
• London Economy Research Programme – NIESR econometric model forecasts and quarterly London Economic Review
• London Monitor business confidence surveys
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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.
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London/UK GDP 1998-2005
Annual Change in London and UK GDP 1998-2005 (1995 Prices)
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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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.
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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.
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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.
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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
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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.
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Change in Unemployment
0.6%0.5%
0.3%0.2% 0.2%
0.1%
-0.1%
-0.4%-0.5%
-0.6%-0.7%
-0.7%
-0.8%
-0.6%
-0.4%
-0.2%
0.0%
0.2%
0.4%
0.6%
South
Eas
t
South
Wes
t
North
Eas
t
East M
idlan
dsEas
t
Wes
t Midl
ands
York
s & H
umbe
r
North
ern
Irelan
d
North
Wes
t
Scotla
nd
Wale
s
Lond
on
Change in ILO Unemployment Rate Year to Oct-Dec 2002
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Unemployment By UK Region
6.9%6.6%
5.9%5.5% 5.5%
5.2% 4.8% 4.8% 4.6%
4.0% 3.9% 3.9%
0%
1%
2%
3%
4%
5%
6%
7%
N. Eas
t
Lond
on
Scotla
nd
W. M
idlan
ds
N. Ire
land
Wale
s
N. Wes
t
York
s & H
umbe
r
E. Midl
ands
S. Wes
tEas
t
S. Eas
t
ILO Unemployment by Region October-December 2002
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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 . . .
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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.
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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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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
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).
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UK Economy Predictions
+5%
+12%
-23% -25%
-12%
-32%
-44% -52%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
Economic Grow th Inflation Interest Rates Unemployment
Expectations for the UK Economy for next 12 months - Q3 2002 and Q4 2002 Balances
Q3 2002 Q4 2002
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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.
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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.
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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.