Transcript London Economic Briefing Bank of England Agency for

The London Economy
Justine Lovatt - LCCI Economist
November 2002
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 rise by only
1.5% in 2002.
• This is above NIESR’s forecast for the
UK economy of 1% for 2002.
• London is suffering from an economic
downturn but is not in recession.
London/UK GDP 1998-2005
Annual % Change in London/UK GDP 1998-2005
(1995 Prices)
7%
6%
5%
4%
3%
2%
1%
0%
1998
1999
2000
2001
2002
London GDP (Residents)
2003
UK GDP
2004
2005
London’s Economic Downturn
• Unemployment in London is now the highest
in the UK at 7.5%.
• The only sector to have increased employment
in the last 12 months is the public sector.
• The City has been hit by Stock Market falls.
Finance output forecast to fall 0.6% in 2002.
• Manufacturing is in recession as in the UK
with output forecast to fall 3.8% in 2002.
Unemployment By UK Region
ILO Unemployment by UK Region July to September 2002
8%
7%
6%
5%
7.5%
6.6%
6.3% 6.2% 6.2%
6.0% 5.8%
5.4%
4.8%
4.1% 4.1% 4.0%
4%
3%
2%
1%
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Unemployment in London
• London unemployment is now 40%
higher than UK unemployment.
• Unemployment has been higher in
London than the UK over the past
decade. Recently unemployment has
risen faster in London than the UK.
• Since 1995 unemployment has fallen in
both the UK and London.
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London/UK Unemployment 1997-2002
London and UK ILO Unemployment 1997-2002
10%
9%
8%
7%
6%
5%
4%
London ILO unemployment
UK ILO unemployment
A Two-Speed Economy
• The London economy, like the UK, is
operating at two-speed with service
sector growth much higher than
industrial production.
• In 2001 and 2002 the industrial
production sector has been in recession
whilst the service sector has recorded
healthy growth.
A Two-Speed Economy
Annual % Change in Services and Industrial Production Indices
7%
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
6.5%
4.0%
2.5%
2.9%
2.7%
2.8%
1.5%
2.9%
2.8%2.6%
2.3%
1.9%
0.6%
-0.5%
-2.1%
1998
1999
2000
2001
Service Sector Index (1995=100)
-3.2%
2002
2003
2004
2005
Industrial Production Index (1995=100)
London Growth To Improve
• The London Model forecasts that
growth will pick up from 2003.
• London is forecast to grow by 2.8% in
2003 compared to 1.5% in 2002.
• But there are threats to London’s
economic growth . . .
Threats To The Economy
• More Stock Market falls or housing
market crash – both will reduce
consumer spending.
• War with Iraq – oil price etc
• Public sector wage demands e.g.
firefighters strike for 40% rise
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
Q3 2002 Survey predictions for next year:
• A balance of +5% expect UK economic
growth to improve.
• The balances for UK inflation (-23%),
interest rates (-12%) and unemployment
(-44%) are all negative (negative
denotes to worsen/rise).
UK Economy Predictions
Expectations for UK Economy for next 12 Months
Q2 and Q3 2002 Balances
40%
+24%
Balance
20%
+5%
0%
-20%
Econom ic
Grow th
Inflation
Interest Rates Unem ploym ent
-12%
-23%
-40%
-40%
-44%
-42%
-60%
-67%
-80%
Q2 2002
Q3 2002
London Economy Today
Q3 2002 Survey showed economic
downturn:
• A balance of only +5% said that their
company’s output has increased over the
past month.
• This is the worst result since the
November 2001 survey.
London Economy Predictions
Q3 2002 Survey predicts improvement in
the short to medium term:
• A balance of +27% expected growth to
improve in London.
• A balance of +59% expected their
business to improve.
London Business on Politics
• In our October LM survey 77% of businesses
rated Blair’s leadership skills highly.
• Only 15% rated Iain Duncan-Smith highly.
• Even Red Ken had a higher rating at 35%.
• Bush was rated highly by 44% of businesses.
• 66% supported an attack on Iraq, most only
with UN approval.
Conclusions
• Economic growth is weak in London at
1.5% in 2002. Manufacturing and
finance are currently in recession.
• Economic growth should now improve.
• Possible threats to this are housing
market/Stock Market falls, war with
Iraq and public sector strikes.