London’s Economy Today

Issue 72 | August 2008

In this issue UK growth grinds to a halt by Richard Davies, Economist and Gordon Douglass, Economist UK growth grinds to a halt ...... 1 Quarterly UK economic growth slowed from 0.3 per cent Latest news ...... 1 in Q1 2008 to zero per cent in Q2 2008. Annual GDP Economic growth fell to 1.4 per cent in Q2 2008 (see Figure 1). indicators ...... 4 Construction output has been badly hit, with the fall mainly Snapshot mid-year in new housing. In , British Land has pushed back update ...... 8 completion of the 47 storey “Cheesegrater” project until at least 2012 due to expected weak demand for offi ce space. UK quarterly growth in the service sector was 0.2 per cent in Q2 2008 down from 0.3 per cent in Q1 2008. Meanwhile output of the production industries fell 0.8 per cent in Q2 2008 compared with a fall of 0.2 per cent in Q1 2008.

Business confi dence declines to a new record low Not surprisingly, the slow down in the economy has had an adverse impact on business confi dence. According to the most recent UK business confi dence monitor by the Institute of Chartered Accountants, business confi dence declined for the fi fth consecutive quarter to reach a new record low. Businesses are facing challenges from the ongoing credit crunch combined with infl ationary pressures from high oil and commodity prices. The construction and property sectors are the least confi dent due to the continuing slump in the housing market. With consumers Latest news...

Working Paper 32 z Working Paper 32: Building Bridges - Some lessons from the Middle Ages on the Building Bridges: Some lessons from the Middle Ages on the long-term economic impact of bridges over the Thames By Andrew P Roach (University of Glasgow) and Bridget Rosewell long-term economic impact of bridges over the Thames Taking a historical perspective on the impact of new infrastructure can help inform policy and here we look at the fi rst key period of major bridge building over the Thames. This longer and broader perspective helps give comfort that new bridges such as the proposed will also be successful. z Current Issues Note 22: Patterns of low pay in London In 2005 between 15 Current Issues Note 22 Patterns of low pay in London By Duncan Melville and Andrew Harker and 19 per cent of employees in London were low paid. Low pay more frequently affects less well qualifi ed, young, and black and ethnic minority employees.

Visit www.london.gov.uk/mayor/economic_unit to download these publications. % Figure 1: UK 7 GDP Growth year-on-year % change 6 % change on previous quarter

Source: Offi ce for 5 National Statistics 4

3

2 2

1

0

-1

-2

-3 1986 Q1 1987 Q1 1988 Q1 1989 Q1 1990 Q1 1991 Q1 1992 Q1 1993 Q1 1994 Q1 1995 Q1 1996 Q1 1997 Q1 1998 Q1 1999 Q1 2000 Q1 2001 Q1 2002 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1

affected by the rise in living costs and concerns over falling house prices, the consumer dependent retail & wholesale and hotels & catering sectors have also seen large declines in business confi dence. A cooling labour market will also affect consumer confi dence. Over the next year, fi rms expect the growth in the number of employees to slow and salaries to rise by just 2.5 per cent. Infl ation increasing Annual UK infl ation continued to rise in July with the ’s target measure CPI infl ation increasing from 3.8 per cent to 4.4 per cent, mainly due to higher food, fuel and transport prices. Most of the major energy suppliers in the UK have announced increases in gas and electricity prices adding further to infl ationary pressures. In its August Infl ation Report, the Bank of England said that it expected infl ation to continue to increase, to above 5 per cent, over the next few months. At least the price of Brent crude oil fell from its high of over $145 per barrel in early July to around $110 by early August. However, due to the current volatile situation in the Caucasus, oil prices have begun to increase again to around $120 per barrel amidst oil supply concerns. Despite the fall in oil prices since early July, Brent oil is still over 20 per cent up since January 2008 and is over 550 per cent higher than its price of $18 per barrel in January 2002. Lenders begin to cut mortgage interest rates Despite the Bank of England base rate staying on hold at 5 per cent since April, lenders have begun to cut their mortgage interest rates. This has been due to the recent fall in the rate, which is currently around 5.75 per cent. However, homebuyers now need to put down at least a 25 per cent deposit to access the best mortgage deals and banks are still tightening their lending criteria. This has meant little respite for fi rst time buyers who are turning to renting in greater numbers, which has increased demand for private renting. New mortgage approvals are at very low levels. The British Bankers’ Association reported mortgage approvals by its members for house purchases totalled only 22,500 in July, similar to June and 65 per cent below the level a year earlier. This weak demand for housing is causing house prices to fall.

London’s Economy Today | Issue 72 Today Economy London’s Growing evidence of a global slowdown The UK and London are not alone in experiencing a slow down in their economies. Further evidence of the worsening global economy emerged in August with the publication of the Q2 2008 GDP estimates for the Eurozone, which showed a quarterly decline of 0.2 per cent. Signifi cant declines were observed in Germany’s GDP, which fell by 0.5 per cent, and Italy’s and France’s, which declined by 0.3 per cent. The US economy continues to experience 3 sluggish growth. The economic climate in the US is still weak, but slightly better than previously predicted. US unemployment rose by around 50,000 to 5.5 per cent in June, the highest level in more than four years, and the effects of the bursting of the housing bubble is still ongoing as witnessed by the 55 per cent rise in home foreclosures in July compared to a year earlier. Combined with evidence of a slight slowdown in emerging market economies, which have also seen infl ationary pressures pick up, the likelihood is for global growth to slow further in 2009. This will negatively impact London’s open economy.

London’s Economy Today | Issue 72 Today Economy London’s Economic indicators

Increase in moving average of passenger numbers • The most recent 28-day period is from Passenger numbers journeys (millions) adjusted for odd days millions 25 May 2008 to 21 June 2008. London’s 200 4 Underground and buses had 258.2 million 180

passenger journeys; 175.2 million by bus 160

and 82.9 million by Underground. 140 • The moving average of passengers every 120 period increased to 251.8 million from a downwardly revised 250.9 million. The 100 moving average for buses was 168.7 80 million. The moving average for the 60

Underground was 83.1 million. 40 • The methodology used to calculate the 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09

number of bus passenger journeys was London Underground Bus (pre 1 April '07 method) Bus (new method) changed by TfL from 1 April 2007. For a London Underground moving average Bus moving average (pre 1 April '07 method) Bus moving average (new method) Source: Transport for London detailed explanation please see LET edition 58 (June 2007). Latest release: August 2008 Next release: September 2008

Average annual growth rate of Annual % change in passengers using London Underground and buses passengers decreases slightly adjusted for odd days % • The moving average annual rate of 20 18 growth in passenger journeys decreased 16 14 to 4.8% from a downwardly revised 4.9% 12 10 in the previous period. 8 6 • The moving average annual rate of 4 2 growth in bus passenger journey numbers 0 remained at 4.7%. -2 -4 • The moving average annual rate of -6 -8 growth in Underground passenger journey -10 -12 numbers decreased to 5.0% from a 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 London Underground Buses downwardly revised 5.4%. Underground plus bus London Underground moving average Buses moving average LU and buses moving average Latest release: August 2008 Next release: September 2008 Source: Transport for London

% Claimant count unemployment Claimant count unemployment rates % of working age population • The rate of claimant count 8

unemployment (the percentage of 7 resident working age population who are 6 unemployed and claiming Jobseekers’ Allowance) in London was 2.7% in July 5 2008. 4

• There were 133,700 unemployment 3 claimants in London in July 2008 2 compared with 144,100 in July 2007. • The claimant count unemployment rate 1 of the UK remains below that of London. 0

Latest release: August 2008 1997 Jan 1998 Jan 1999 Jan 2000 Jan 2001 Jan 2002 Jan 2003 Jan 2004 Jan 2005 Jan 2006 Jan 2007 Jan 2008 Jan

London’s Economy Today | Issue 72 Today Economy London’s Next release: September 2008 London UK Source: Claimant Count, NOMIS Real GVA growth in London and the UK % Annual output growth in London year-on-year change faster than in the UK 8 • London’s annual growth in output 7 6

decreased to 3.4% in Q1 2008 from a 5 downwardly revised 3.7% in Q4 2007. 4 5 • The UK’s annual growth in output 3 decreased to 2.5% in Q1 2008, from 2 1

2.8% in Q4 2007. London has been 0

growing at a faster annual rate than the -1 UK since Q3 2004. -2 • There have been revisions to previous -3 -4

growth rates to refl ect the availability -5 of new data. 1983 q1 1984 q1 1985 q1 1986 q1 1987 q1 1988 q1 1989 q1 1990 q1 1991 q1 1992 q1 1993 q1 1994 q1 1995 q1 1996 q1 1997 q1 1998 q1 1999 q1 2000 q1 2001 q1 2002 q1 2003 q1 2004 q1 2005 q1 2006 q1 2007 q1 2008 q1 Latest release: August 2008 London UK Next release: November 2008 Source: Experian Business Strategies

Full-time equivalent employment in the UK and London year-on-year growth from quarterly figures % London’s annual employment growth 6 faster than in the UK 4 • London’s annual employment growth decreased to 0.9% in Q1 2008 from a 2 downwardly revised 1.7% in Q4 2007. 0

• Annual employment growth in the UK -2 increased to 0.7% in Q1 2008 from 0.4% in Q4 2007. -4

• There have been revisions to previous -6 growth rates to refl ect the availability -8 of new data. 1989 q1 1990 q1 1991 q1 1992 q1 1993 q1 1994 q1 1995 q1 1996 q1 1997 q1 1998 q1 1999 q1 2000 q1 2001 q1 2002 q1 2003 q1 2004 q1 2005 q1 2006 q1 2007 q1 2008 q1 Latest release: August 2008 Next release: November 2008 London UK Source: Experian Business Strategies

House prices, UK and London Falling house prices year-on-year growth from quarterly figures, seasonally adjusted data % • Annual house prices, as measured by 36

the Halifax Bank of Scotland, fell in Q2 30 2008 in both London and the UK. 24 • Annual house price infl ation in London decreased to –7.3% in Q2 2008 from 18

2.1% in Q1 2008. Annual house price 12

infl ation in the UK decreased to –6.0% 6 in Q2 from 1.1% in Q1 2008. • Annual house price infl ation was 0 negative in London for the fi rst time -6

since Q2 2005. -12

Latest release: July 2008 1989 q1 1989 q3 1990 q1 1990 q3 1991 q1 1991 q3 1992 q1 1992 q3 1993 q1 1993 q3 1994 q1 1994 q3 1995 q1 1995 q3 1996 q1 1996 q3 1997 q1 1997 q3 1998 q1 1998 q3 1999 q1 1999 q3 2000 q1 2000 q3 2001 q1 2001 q3 2002 q1 2002 q3 2003 q1 2003 q3 2004 q1 2004 q3 2005 q1 2005 q3 2006 q1 2006 q3 2007 q1 2007 q3 2008 q1 Next release: October 2008 London UK Source: HBoS

London’s Economy Today | Issue 72 Today Economy London’s Passengers London's airports % passenger numbers Weak airport passenger numbers 15,000,000 20 • 12.7 million passengers travelled 14,000,000 16 through London’s airports in July 13,000,000 12

2008. 12,000,000 8

• The number of passengers using 11,000,000 4 London’s airports decreased by 1.3 per 10,000,000 0 6 cent from July 2007 to July 2008. 9,000,000 -4

• The number of passengers using 8,000,000 -8 London’s airports has fallen year-on- 7,000,000 Total passengers -12 year for the last two months. Annual % change in passengers 6,000,000 -16

Latest release: August 2008 5,000,000 -20 Next release: September 2008 2008 Jan 2007 Jan 2006 Jan 2005 Jan 2004 Jan 2003 Jan 2002 Jan 2001 Jan 2000 Jan 1999 Jan 1998 Jan 2008 Apr 2007 Apr 2006 Apr 2005 Apr 2004 Apr 2003 Apr 2002 Apr 2001 Apr 2000 Apr 1999 Apr 1998 Apr 2007 Oct 2006 Oct 2005 Oct 2004 Oct 2003 Oct 2002 Oct 2001 Oct 2000 Oct 1999 Oct 1998 Oct 2008 July 2007 July 2006 July 2005 July 2004 July 2003 July 2002 July 2001 July 2000 July 1999 July 1998 July Source: Civil Aviation Authority

Greater London Retail Traffic Index 2008 compared with 2007, 2006, 2005 and 2004 SPSL Retail Traffi c just above 2007 Index levels 160

• The SPSL Retail Traffi c Index of 150

shoppers in London was 90.2 in the 140

second full week of August compared 130

to 94.2 in the previous week. 120

• The index has been just above 2007 110

levels since June. 100

• SPSL’s Retail Traffi c Index measures 90

the number of shoppers and does 80

not necessarily refl ect the level of 70

spending. 60 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Latest release: Mid-August 2004 2005 2006 2007 2008 Next release: Weekly Source: SPSL

Business activity in London index seasonally adjusted index (50 indicates no change on previous month) 70 London’s business activity falls • London fi rms decreased their output of 65 goods and services in July 2008. • The Purchasing Managers’ Index (PMI) 60

of business activity recorded 46.2 in 55 July compared to 46.4 in June.

• A rate of below 50 on the index 50 indicates a decrease in business activity from the previous month. 45

40 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Sep-97 Sep-98 Sep-99 Sep-00 Sep-01 Sep-02 Sep-05 Sep-06 Sep-07 Sep-03 Sep-04 May-97 May-98 May-99 May-00 May-01 May-02 May-03 May-04 Latest release: August 2008 May-05 May-06 May-07 May-08 Next release: September 2008 London Source: RBS/Markit Economics

London’s Economy Today | Issue 72 Today Economy London’s Level of employment in London index London employment continues to seasonally adjusted index (50 indicates no change on previous month) 65 weaken • The PMI shows that the level of 60 employment in London fi rms fell in July 2008. 7 • The PMI for the level of employment 55 was 45.8 in July compared to 47.0 in June. 50 • A rate of below 50 on the index indicates a decrease in the level of 45 employment from the previous month. 40 Jan-08 Jan-06 Jan-07 Jan-04 Jan-05 Jan-02 Jan-03 Jan-00 Jan-01 Jan-98 Jan-99 Jan-97 Sep-07 Sep-05 Sep-06 Sep-03 Sep-04 Sep-01 Sep-02 Sep-99 Sep-00 Sep-97 Sep-98 May-08 May-06 May-07 May-04 May-05 May-02 May-03 May-00 May-01 May-98 May-99 Latest release: August 2008 May-97 Next release: September 2008 London Source: RBS/Markit Economics

New orders in London index seasonally adjusted index (50 indicates no change on previous month) 70 New orders in London decreasing • July 2008 saw a fall in new orders for 65 London fi rms. 60 • The PMI for new orders recorded 45.4

in July 2008 compared to 44.9 in June 55 2008. • A rate of below 50 on the index 50 indicates a decrease in new orders from the previous month. 45

40 Latest release: July 2008 Jan-08 Jan-07 Jan-06 Jan-05 Jan-04 Jan-03 Jan-02 Jan-01 Jan-00 Jan-99 Jan-98 Jan-97 Sep-07 Sep-06 Sep-05 Sep-04 Sep-03 Sep-02 Sep-01 Sep-00 Sep-99 Sep-98 Sep-97 May-08 May-07 May-06 May-05 May-04 May-03 May-02 May-01 May-00 May-99 May-98 Next release: August 2008 May-97 London Source: RBS/Markit Economics

RICS housing market survey Surveyors report that house prices net balance in London and in England and Wales; seasonally adjusted data are falling in London and in England 100 and Wales 80 • The RICS survey shows a negative net 60 balance of -72 for London house prices 40 over the past three months up to July 20 2008. This net balance is up from –78 0 in June. -20 • Surveyors reported a negative net -40 house price balance for England and -60 Wales of –84 in July 2008, up from -87 -80 in June. -100 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Apr-00 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 • London’s net balance remains just Oct-00 Oct-01 Oct-02 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 above that of England and Wales. London's net balance England and Wales net balance Source: Royal Institute of Chartered Surveyors

Latest release: August 2008 Next release: September 2008

London’s Economy Today | Issue 72 Today Economy London’s Snapshot mid-year update

Katerina Angelopoulou, The latest Snapshot report which sets out the Economist performance of London’s economy against the objectives of the Mayor’s Economic Development Strategy (EDS), 8 was published in July 2008.

The Snapshot aims to: • identify and review London’s progress against the strategic priorities of the EDS; • provide a basis on which to review the priorities for London’s economic development; and, • act as a catalyst for directing economic development activities in London. From 2008, the Snapshot report will be published on an annual basis in January of each year. The recent publication acts as a mid-year update to the main Snapshot report and aims to highlight any signifi cant changes in the past six months. Whilst the Snapshot shows that London performs well on a number of indicators, stakeholders in London’s economy need to maintain their focus on London’s relatively low employment rate, which particularly impacts on some disadvantaged groups and some deprived areas.

Figure 2: Employment 76 rate in London and 74 the UK Source: LFS. 72

70

London 68 (%) UK

66

64

62

60 Winter 1992 Winter 1993 Winter 1994 Winter 1995 Winter 1996 Oct-Dec 1997 Oct-Dec 1998 Oct-Dec 1999 Oct-Dec 2000 Oct-Dec 2001 Oct-Dec 2002 Oct-Dec 2003 Oct-Dec 2004 Oct-Dec 2005 Oct-Dec 2006 Oct-Dec 2007 Year to London’s employment rate has been below the UK average since the beginning of the 1990s. Furthermore whilst the employment rate for the UK as a whole has increased by 2 percentage points over the current economic cycle (1997-to date), the employment rate for London has increased by only 0.6 percentage points. This led to the widening of the gap from 2.8 percentage points at the beginning of the cycle to 4.2 percentage points in the year to March 2008.

London’s Economy Today | Issue 72 Today Economy London’s London’s employment rate showed a slight improvement in the year to March 2008. However, London’s economy may grow at a slower rate than the UK as a whole over the next couple of years. Therefore, the improvement in London’s employment rate is unlikely to be sustained over the next few years. The combined employment rate for the seven most disadvantaged areas of London continues to grow. Since 2007 the gap with London as a whole has fallen below 5 percentage points for the fi rst time since at least the beginning 9 of the 1990s. According to the 2007 Index of Multiple Deprivation the seven most disadvantaged boroughs are: Barking and , Hackney, Haringey, Islington, Lambeth, Newham and Tower Hamlets. The Snapshot report highlights that in 2007 London’s skills position may have deteriorated. More specifi cally the London Annual Business Survey (LABS) 2007 shows that a higher proportion of London businesses indicated that the availability of appropriately skilled employees was a signifi cant or a very signifi cant problem than in last year’s survey. Furthermore, the National Employers Skills Survey (NESS) 2007 indicates that staff in London were more likely to have skill gaps and employers in London were more likely to have skill shortage vacancies than England as a whole. Nevertheless, despite the recent deterioration in London’s skill position relative to that for England, it is still the case that over 90 per cent of staff in London have no skill gaps and over 90 per cent of employers have no skill shortage vacancies. For more information on the Snapshot visit: http://www.lda.gov.uk/server/show/ConWebDoc.1203

London’s Economy Today | Issue 72 Today Economy London’s Additional information

Data sources Tube and bus ridership Transport for London on 020 7222 5600 or email: enquire@tfl .gov.uk 10 GDP/GVA growth Experian Business Strategies on 020 7630 5959 Tourism – overseas visitors www.statistics.gov.uk Tourism – domestic visitors www.visitlondon.com London airports www.caa.co.uk Business activity www.rbs.co.uk/pmireports Unemployment rates www.statistics.gov.uk

Glossary Civilian workforce jobs Measures jobs at the workplace rather than where workers live. This indicator captures total employment in the London economy, including commuters. Claimant count rate Unemployment rate based on the number of people claiming unemployment benefi ts. Employee jobs Civilian jobs, including employees paid by employers running a PAYE scheme. Government employees and people on training schemes are included if they have a contract of employment. Armed forces are excluded. Gross domestic product (GDP) A measure of the total economic activity in the economy. Gross value added (GVA) Used in the estimation of GDP. The link between GVA and GDP is that GVA plus taxes on products minus subsidies on products is equal to GDP. ILO unemployment rate The International Labour Organisation’s calculation of the number of people out of work. Tube ridership Transport for London’s measure of the number of passengers using London Underground in a given period. There are 13 periods in a year. In 2008/09 there are eleven 28-day periods, one 26-day period and one 31-day period. Period 1 started on 1 April.

Bus ridership Transport for London’s measure of the number of passengers using buses in London in a given period. There are 13 periods in a year. In 2008/09 there are eleven 28-day periods, one 26-day period and one 31-day period. Period 1 started on 1 April.

London’s Economy Today | Issue 72 Today Economy London’s Acronyms GVA Gross value added Annual Business Inquiry ABI ILO International Labour Organisation British Airports Authority BAA IMF International Monetary Fund British Chamber of Commerce BCC LCCI London Chamber of Commerce and Industry British Incoming Tour Operators Association BITOA LET London’s Economy Today 11 Civil Aviation Authority CAA MPC Monetary Policy Committee Confederation of British Industry CBI ONS Offi ce for National Statistics Department for Communities and DCLG PMI Purchasing Managers’ Index Local Government PWC PricewaterhouseCoopers Experian Business Strategies EBS RICS Royal Institute of Chartered Surveyors GDP Gross domestic product

Past features Issue 48 A new Local Area Tourism Impact model for London 49 What works with tackling worklessness? 50 Retail in London 51 Who are London’s low paid? 52 London’s opportunities in emerging markets 53 London Economic Development Snapshot London’s employee jobs - the latest trends 54 : Where is it going? 55 How large is wage inequality in London? Budget 2007: The implications for London 56 The McKinsey Report and its relevance to London’s fi nancial services sector 57 Focus on key London employment sectors 58 Increasing London’s housing supply 59 London Economic Development Snapshot 60 Creative London - London’s Creative Sector: 2007 Update 61 The value of London’s key exports 62 Globalisation, skills and employment: The London story 63 Working hard or hardly working? How cities could work better. GLA Economics’ international conference reviewed 64 London’s Central Business District: Its global importance 65 London Economic Development Snapshot 66 Women, employment and the gender pay gap 67 Budget 2008: A summary 68 Employment in London by fi rm size 69 Credit crunch and the property market 70 The evolution of UK and London employment rates 71 Self-directed adult social care in London

London’s Economy Today | Issue 72 Today Economy London’s GLA Economics City Hall The Queen’s Walk London SE1 2AA

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© Authority August 2008

ISSN 1740-9136 (print) ISSN 1740-9195 (online) ISSN 1740-9144 (email)

London’s Economy Today is published by email and on www.london.gov.uk towards the end of every month. It provides an overview of the current state of the London economy, and a changing selection of the most up-to-date data available. It tracks cyclical economic conditions to ensure they are not moving outside the parameters of the underlying assumptions of the GLA group and central government.

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