Transcript London Economic Briefing Bank of England Agency for

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 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.
London/UK GDP 1998-2005
Annual Change in London and UK GDP 1998-2005
(1995 Prices)
7%
6%
5%
4%
3%
2%
1%
0%
1998
1999
2000
2001
2002
London GDP - Workplace
2003
UK GDP
2004
2005
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 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.
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
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
Change in ILO Unemployment Rate Year to Oct-Dec 2002
0.6%
0.6%
0.4%
0.2%
0.5%
0.3%
0.2% 0.2%
0.1%
0.0%
-0.2%
-0.4%
-0.6%
-0.4%
-0.5%
-0.6%
-0.7%
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-0.8%
-0.1%
-0.7%
Unemployment By UK Region
ILO Unemployment by Region October-December 2002
6.9%
7%
6%
5%
4%
6.6%
5.9%
5.5% 5.5%
5.2% 4.8% 4.8%
4.6%
4.0% 3.9% 3.9%
3%
2%
1%
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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 . . .
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 2003.
• 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
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).
UK Economy Predictions
Expectations for the UK Economy for next 12 months
- Q3 2002 and Q4 2002 Balances
+12%
20%
+5%
10%
0%
-10%
-12%
-20%
-23% -25%
-30%
-32%
-40%
-44%
-50%
-60%
Economic Grow th
Inflation
Q3 2002
Interest Rates
Q4 2002
Unemployment
-52%
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.
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.
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.