Our London Economic Panel convened last week, for its spring update from the Bank of England and GLA. Members were taken through a detailed picture of the London and wider UK economy, which presented cause for both optimism and caution.
London’s economy performed better than expected in the immediate aftermath of the vote to leave the EU, growing by 2.8% in 2016 – a slower growth rate than in previous years where trend growth was 3 to 4%.
Looking ahead to 2017 there are indicators that suggest a further slowdown:
total jobs have been growing with strength since 2012, but have since slowed down;
unemployment hit a historic low mid-2016 but has since picked up;
there has been a slight drop in tube usage, indicating a slowing of central business zone activity, and
surveyors have reported falling house prices.
On the positive side, business activity, a measure of new business expectations and employment intentions, has rebounded since the referendum and continues to grow. Consumer confidence also recovered after an initial drop following the referendum result.
Sterling has depreciated by approximately 10% against the dollar and the Euro, and is forecast by the Bank of England to stabilise at this level. The weaker currency has made the capital more affordable to foreign visitors and given a boost to London tourism. This has had positive effects on retail, leisure and hospitality.
However, there is some concern around the rising costs of food imports which could increase costs by 18 to 34% over 18 months. The hospitality sector is also highly dependent on EU nationals, and continued access to these workers post-brexit, is an ongoing concern.
The Bank of England reported a similar slowing of growth in the overall UK economy. UK growth is expected to be constrained in the period up to brexit as companies move to reorganise business processes and mitigate uncertainties around access to European markets.
The panel will next meet in July, after a critical tipping point for the London and UK economies, as the newly elected government takes up office.
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