London's Economy Today

London’s Economy TodayIssue 211 | March 2020

Coronavirus takes hold in the UK, and grows fastest in London

By Mike Hope, Economist, and Eduardo Orellana, Economist Also in this issue Over the course of the last month the coronavirus Spread in the UK is following the (COVID-19) has taken hold in the UK. The number pattern of other countries...... 2 of confirmed cases in London has more than Economic effects of COVID-19... 3 quadrupled from 621 on 17 March to 2872 on 24 Government economic response March. As this situation has evolved the Prime to COVID-19...... 6 Minister has announced a number of increasingly Impact on London of COVID-19.8 stringent measures to maintain “social Other implications for London in distancing”. The Chancellor has also made three the Budget statement...... 10 big policy statements which began with a package Economic indicators...... 11 focused on sectors and businesses most directly Regional, sub-regional and local affected before announcing a comprehensive Gross Value Added estimates for package of social insurance across all businesses London, 1998-2018...... 17 and workers. It is reported that additional Our latest publications...... 21 measures for the self-employed will be announced Datastore today. The Bank of England has intervened twice The main economic indicators for to reduce the cost of borrowing and improve London are available to download liquidity. This editorial explores what has been from the London Datastore. happening and why, and what it means so far for London. The final section reports on the Budget. London’s Economy Today • Issue 211 • March 2020

Spread in the UK is following the pattern of other countries London is the hotspot for cases in the UK, accounting for 44% of confirmed cases. Cases of COVID-19 are being reported across the globe. Once the infection has become established in a country its growth has been exponential in the first phase (Figure 1). While China accounted for almost all cases in January, the growth in numbers there has been slowing since February. In South Korea the growth in cases has also slowed, although this has not been the experience of Italy so far. It is too early to say how the number of cases will develop in the UK. (Please note that numbers for the world are on the left-hand axis, and for individual countries on the right-hand axis.)

450,000 90,000 Figure 1: Number of confirmed COVID-19 400,000 80,000 cases in the world, 350,000 70,000 China, Italy, South Korea, and the UK, 300,000 60,000 day by day in 2020 to 250,000 50,000 24 March

World 200,000 40,000 Countries Source: European Centre

150,000 30,000 for Disease Prevention and Control and GLA Economics 100,000 20,000 calculations

50,000 10,000

0 0 31/1 31/0 29/0 24/0 2/19 1/20 2/20 3/20

World (LHS) China (RHS) Italy (RHS) South Korea (RHS) UK (RHS) This pattern of infection contrasts with the experience of the SARS virus in 2002 and 2003. Although they are both coronaviruses, in the case of SARS each person who caught the virus passed it on average to less than one person, and so ultimately the virus died out. On average each person who contracts COVID-19 passes it to two or more people, which is why without effective intervention it grows exponentially. The Government has stated that it might eventually reach 80% of the population. Another feature of the virus is that an individual can be infectious without being aware of it, which makes containment challenging. By 12 March the Government believed that 50-55,000 people had the condition, even though the number of confirmed cases then was less than 500. China and South Korea have been effective in implementing “social distancing” measures for their populations. The benefit of these measures is that they spread and reduce the peak of the infection, and so manage the pressure on health services at any one time. This meets the UK Government objective to minimise the number of deaths. While this kind of strategy is widely seen as the one that can best tackle the health consequences of the pandemic it is bound to have major adverse implications for the economy in the short to medium-term, as the next sections discuss. The UK Government has escalated its measures to address the making of unnecessary journeys, and participating in social or group activities, to closing schools, pubs, clubs, restaurants, gyms and leisure centres. It is now policy that people stay at home beyond a small range of very limited circumstances.

GLA Economics 2 London’s Economy Today • Issue 211 • March 2020

Economic effects of COVID-19

The latest indicators for London’s economy, which are for January and February, showed improvements in business confidence, the labour market, the housing market, and consumer confidence which has been in part put down to the clear outcome of the general election. As more data becomes available this is unlikely to continue in the coming months. Initially, based on the experience of the SARS virus the expectation was that the economic effects of COVID-19 would largely be concentrated in China, with some transmission through supply chains to other parts of Asia and Europe. This was the view of the Office for Budget Responsibility (OBR) when it closed its Budget forecast for new data on 14 February. It lowered its forecasts for the growth of world trade and UK export markets by 0.5 and 0.2 percentage points respectively. This was expected to knock 0.1 percentage points off UK GDP growth this year, which they were forecasting at 1.1%. The Organisation for Economic Cooperation and Development (OECD) in its Economic Outlook published this month took a similar view. It estimated that global growth could be lowered by around ½ percentage point this year relative to that expected in the November 2019 Economic Outlook. Accordingly, annual global GDP growth was projected to drop to 2.4% in 2020 as a whole, from an already weak 2.9% in 2019, with growth possibly even being negative in the first quarter of 2020. S&P Global and Goldman Sachs are forecasting that the Eurozone will enter recession in the first half of this year before a recovery begins later in the year. The European Commission (EC) has revised its forecast for EU growth for 2020 to -1% from 1.4%, with a less than complete rebound in 2021. This assumes that morbidity and mortality rates are similar across states, and to what has been observed elsewhere. It estimated that the effects would be more detrimental in Europe than China because the economy is more integrated. As a result, restrictions and limitations on the movement of people, goods, and services would be more damaging. If there were a shock of the size the EC is estimating for the EU the UK would almost certainly enter recession. Furthermore, some of the indicators later in this section are consistent with an even larger economic shock. As developments over the last two weeks have been very rapid it may well be that some of these indicators have further to adjust as the implications of the spread of the virus become better understood.

GLA Economics 3 London’s Economy Today • Issue 211 • March 2020

As the month has progressed forecasts for the UK economy have worsened: zz 11 March: the National Institute of Economic and Social Research (NIESR) cut its UK GDP forecast from 1.2% to 0.5% because of the COVID-19 crisis. zz 17 March: the British Chambers of Commerce downgraded its UK GDP growth expectations for 2020 to 0.8%, from a previous forecast of 1.0%. zz 20 March: Capital Economics forecasts a 15% drop in UK GDP in the second quarter of 2020. This is a level unprecedented in modern history – GDP fell by 6% in the financial crisis and 8% in the Great Depression. Overall, they forecast a GDP reduction of 7% in 2020. Only earlier in March, Capital Economics, had estimated that output in Britain could shrink by 2.5% in the second quarter, with 5% as an upper boundary. zz 20 March: It was reported that Oxford Economics now expects the UK to fall into a deep recession in the first half of 2020, with GDP shrinking by 1.4% in 2020 as a whole (the economy grew by 1.4% in 2019). Their downside scenario, involving a further worsening of the outbreak and financial stress, would see GDP falling by 2.5% this year. According to the same forecasters “The subsequent rebound in activity should be strong, as the resumption of discretionary spending is supported by low oil prices and monetary and fiscal stimulus. We now expect GDP growth of 3.7% in 2021.” On 23 March, the International Monetary Fund (IMF) provided an overview: “[…] the outlook for global growth: for 2020 it is negative—a recession at least as bad as during the global financial crisis or worse. But we expect recovery in 2021. To get there, it is paramount to prioritize containment and strengthen health systems—everywhere. The economic impact is and will be severe, but the faster the virus stops, the quicker and stronger the recovery will be.” Emerging data on what is happening at present is not positive. The latest IHS Markit flash Purchasing Managers’ Indicators report that business confidence has declined to an all-time low (in over 20 years of data collection) in both the UK and the Eurozone, and is consistent with a sharp decline in economic activity. The UK indicator declined from 53.0 to 37.1 between February and March, while for the Eurozone the fall was from 51.4 to 31.4. As a guide figures released by the National Bureau of Statistics in China for January and February provide an indication of the harm to its economy compared with a year earlier in real terms: zz Industrial output fell 13.5% zz Fixed asset investment fell 24.5% zz Retail sales shrank 23.7% Weakening economic prospects have been reflected in sharply falling share prices with stock markets seeing some of their biggest one day falls since the crash of 1987. The FTSE100 has fallen 33%, which is close to the fall of 39% during the 2008 recession (Figure 2). Share prices have been falling across the world, and the Dow Jones has fallen by 37%. There was a slight recovery on 24 March in both the UK and US following the announcement of the passing of a $2 trillion US stimulus package (the largest in its history). This may be a recognition of significant government intervention to stem the economic effects of the virus spreading, see next section.

GLA Economics 4 London’s Economy Today • Issue 211 • March 2020

Figure 2: FTSE100 and 9,000 36,000 Dow Jones Industrial 8,000 32,000 Average, October 7,000 28,000 1997-March 2020 6,000 24,000 Source: London Stock

5,000 20,000 Exchange, Yahoo! Finance, and Federal Reserve Bank of 4,000 16,000

FTSE100 St Louis

3,000 12,000

2,000 8,000 Dow Jones Industrial Average

1,000 4,000

0 0

FTSE100 (LHS) Dow Jones (RHS) As the COVID-19 virus spreads it has become apparent that there would be other supply effects, beyond supply chain effects. The Chancellor of the Exchequer in his Budget speech on 11 March stated that up to 20% of the working-age population might have the infection at any one time. Everyone affected is currently expected to self-isolate for at least a week, and even if well enough for some of this time not everyone would be able to work from home. If this infection rate happened, there would be a major contraction of supply capacity. The enforced closure of some shops and facilities reduces supply in the retail, hospitality and leisure sectors, where online providers are not able to pick up all the slack. The response to panic buying in supermarkets has also been to ration supply. Consumer demand for goods and services is likely to fall significantly with fewer opportunities to spend as people stay at home, a large amount of jobs are likely to be lost, most shops are forced to close, and households have an incentive to save for precautionary reasons. Uncertainty may also delay business investment decisions. The drop in demand has been reflected in the fall in the oil price, as Saudi Arabia started a price war with US shale, and Russian oil. For comparison, the fall by mid-March had been 53%, compared with a fall of 72% during the 2008 recession. Markets have also reacted by moving assets into safe haven currencies, which has seen the pound fall. Sterling has fallen against both the dollar and the euro by 10% over the last month. This compares with falls of 24% against the euro, and 29% against the dollar during the recession in 2008. There was the risk of a run on the pound, manifested in rising yields (or interest rates) for government bonds. This triggered action by the Bank of England (BoE) on 19 March to improve liquidity. There are also concerns about corporate indebtedness, and the ability of companies to roll over debt as it matures. This will depend on the impacts in the first instance on companies directly affected in sectors such as retail, hospitality, leisure, and transportation. If it manifests itself there may be a credit crunch, and the effects may spread across the economy. The extent to which this may happen will also depend on how effective bank action to build up capital reserves since the 2008 financial crisis has been and the effectiveness of the government’s measures which are covered in the next section.

GLA Economics 5 London’s Economy Today • Issue 211 • March 2020

Government economic response to COVID-19 In parallel with the strengthening of measures to bring about “social distancing” the Government has been ramping up its economic response as the speed with which the virus spreads and its associated economic shock increases. There has been coordinated action by the BoE and HM Treasury (HMT) which began on Budget day. The BoE can help address liquidity constraints by reducing the cost of finance, and making it more readily available to improve liquidity. There have been two tranches of support: zz 11 March {{Base rates cut by 50 basis points to 0.25% {{The introduction of a Term Funding Scheme, with additional incentives for Small and Medium Sized Enterprises (SMEs), which could make £100bn available at close to BoE interest rates {{The countercyclical buffer rate cut to 0% from 1% zz 19 March {{Base rates cut by 15 basis points to 0.1%, its lowest ever level {{Quantitative easing increased by £200m to £645m

The Chancellor has made three big policy statements (as of 25 March) which began with a package focused on sectors and businesses most directly affected to a comprehensive package of social insurance intended for all businesses and workers. Some highlights are in Box 1. The Government has also committed to further support for some industries although details of most of this support is still limited. The Government has suspended the rail franchise system, while there has been no mention of support for other transport companies as yet. In the development of this package the Government initially focused on measures that can be achieved operationally quickly. Inevitably, this means that support announced up to 25 March is less comprehensive for some in the gig economy, or on zero hours contracts, who are not part of the PAYE system. Nor was there up to that date any provision for loss of earnings for the self-employed, or the challenges of providing childcare for low income working families now that schools have shut. The Resolution Foundation warns that “lower earners are likely to be hit the most because of the Covid-19 crisis”. By sectors, retail (excluding food), hotels and restaurants, airlines, travel operators, cleaning, arts and entertainment, and personal services like hairdressing are thought to be the most damaged ones. These industries “comprise 5 million employees and 1.2 million self-employed people. 2 million of the lowest earners also lack entitlement to sick pay. Less than one-in-ten of those in the bottom half of earners say they can work from home, making it much harder for them to protect their incomes in the face of social distancing measures.”

GLA Economics 6 London’s Economy Today • Issue 211 • March 2020

Box 1: Summary of policy statements by the Chancellor of the Exchequer, 11 to 20 March 2020 zz 11 March in the Budget {{A three-part £12bn plan

◊ An additional £5bn for health services ◊ Support to individuals through extending entitlement to sick pay from the first day of illness, and extensions to Universal Credit, and a £0.5bn Hardship Fund for local authorities ◊ Support to businesses including:

* Small business rates relief to retail, hospitality, and leisure businesses * A £3,000 grant to 700,000 small businesses (including over 70,000 in London) * Refunding of SMEs Statutory Sick Pay costs due to COVID-19 * A Coronavirus Business Intervention Loan Scheme offering guarantees on 80% of loans to SMEs up to £1.2 million each, and £1 billion in total zz 17 March {{Initial £330bn in Government-backed and guaranteed loans for businesses – equivalent to around 15% of GDP. Any business which needs them will be able to access them.

{{A new Bank of England lending facility to support liquidity amongst larger firms, and extension of a loan scheme for SMEs up to £5m

{{A package of tax cuts and grants, in this financial year, worth more than £20 billion. Local authorities in England will be “fully compensated” for the costs of these measures:

{{For those businesses in the hospitality, retail, and leisure sectors who are not insured against a pandemic, there will be an additional cash grant of up to £25,000 to help bridge this period.

{{12 month business rates holiday extended to all businesses in hospitality, retail, and leisure sectors, irrespective of their rateable value (the Budget had already announced no business rates for firms with rateable value of less than £51,000.)

{{Increasing cash grants from £3,000 to £10,000 for smallest 700,000 businesses.

{{Mortgage lenders will offer a 3-month mortgage holiday for those in difficulties

{{The Prime Minister subsequently committed to pass legislation to protect private renters who face financial problems from eviction zz 20 March {{A Coronavirus Job Retention Scheme will cover up to 80% of current salary, up to £2,500 per month for workers whose jobs become furloughed

{{Deferral of next quarter of tax payments for businesses, an injection of £30 billion into the economy

{{Deferral of self-assessment payments for the self-employed until January 2021

{{Welfare measures worth £7 billion for those in and out-of-work across Universal Credit (and predecessor financial support) with increases in personal allowances and local housing allowances

GLA Economics 7 London’s Economy Today • Issue 211 • March 2020

Impact on London of COVID-19 The Government has stated that London is two weeks ahead of the rest of the country in the advance of the infection. Across London as well there is a gradient in the hold of the virus, while the distribution of confirmed cases is shifting across the city. At 17 March there were 58 confirmed cases in each of Southwark and Westminster, while seven local authorities had fewer than 10 cases, (Map 1). By 24 March, there were 188 confirmed cases in Lambeth, and 181 in Southwark, while six local authorities had fewer than 50 cases, (Map 2). Please note the scales of the two maps differ.

Map 1: Distribution of confirmed COVID-19 cases around London local authorities, 17 March 2020 Note: The scales of Maps 1 and 2 differ

Source: Public Health England

Map 2: Distribution of confirmed COVID-19 cases around London local authorities, 24 March 2020 Note: The scales of Maps 1 and 2 differ

Source: Public Health England

GLA Economics 8 London’s Economy Today • Issue 211 • March 2020

There is however currently limited information on the possible impacts for business, and how people are responding, and the rest of this section provides what is available. There are significant impacts for business from restrictions on the movement of people, goods and services as London is a city open to the rest of the world. In 2016 exports were 36% of London’s GVA, and 31% for the UK as a whole. London has a trade surplus with the EU, and the rest of the world, while the rest of the UK has a deficit. Further, London accounts for nearly a quarter of the output of the economy. Over the space of ten days there had been a significant change in how Londoners were responding to developments. At the same time there was still a significant proportion of the population who had not recognised the severity of the crisis and changed their behaviours. Around 6-10 March, 47% were behaving differently in response to the crisis, and this had increased to 74% by 16-19 March (Figure 3). The main response has been to improve personal hygiene, with the proportion doing this rising from 43% to 68%. Only half, or near half, of Londoners said they were avoiding crowded public places, reducing visits to restaurants, and the use of public transport. A third of Londoners said that they are self-isolating, 30% had stopped going into work, and a fifth admitted to stockpiling. This was before the Government announced the closure of leisure facilities, and the subsequent requirement to stay at home except for non-essential reasons. Figure 3: Actions 80% taken by Londoners 70% to protection from 60% 50% COVID-19, 6-10 and 40% 16-19 March 2020 30% Source: YouGov survey for the 20% GLA 10% 0%

6-10 March 16-19 March

In 2019, London was the third most visited city in the world with 19.1 million visitors, according to the Mastercard Global Destination Cities Index. Visitor numbers are likely to drop markedly. Between the 16th and 22nd March cancellations exceeded bookings from every global region by 174,000, according to travel agent bookings data from ForwardKeys. Year-on-year forward bookings are down by 61% for the month of April.

GLA Economics 9 London’s Economy Today • Issue 211 • March 2020

Other implications for London in the Budget statement In addition to sections on COVID-19 the Budget included other significant expenditure proposals. By the end of this Parliament day to day spending on public services would increase by £100 billion in cash terms. The NHS will receive £33.9 billion of this money. Even before the spending commitments the Chancellor made in the following week this would have brought government spending as a share of GDP to levels last seen in the 1970s, at round 41% of GDP. There were no new devolution announcements specific to London. Instead, the Budget stated that “the government will publish an English Devolution White Paper in the summer, setting out how it intends to meet its ambition for full devolution across England”. Other London specific announcements included: zz The Government announced that it is “committed to moving 22,000 civil service roles out of central London within the next decade”. And “HM Treasury will establish representation in all the nations of the UK”. zz The second Road Investment Strategy (RIS2) which will spend over £27 billion between 2020 and 2025. Amongst other measures it will include building the Lower Thames Crossing to increase road capacity across the Thames east of London by 90%. zz On Financial Regulation the Government announced that it will be taking “a number of steps to ensure that the UK’s regulatory regime remains proportionate and effective. These will enhance coordination between regulators and ensure the UK continues to lead the way on financial services innovation and the use of technology, including on the regulation of payments and cryptocurrencies. The Government will also introduce a Financial Services Bill later in the session which will ensure that the UK maintains its world-leading regulatory standards and remains open to international markets”. zz On fintech “a review of the UK fintech sector led by Ron Kalifa OBE to support growth and competitiveness in the sector” was announced. zz Increased funding for the UK’s foremost specialist institutions (a number of which are in London) by £80 million over the next five years. zz And in response to the Grenfell tragedy, and having taken expert advice, the Budget confirmed an additional £1 billion to remove unsafe cladding from residential buildings above 18 meters to ensure people feel safe in their homes. Despite limited announcements on further devolution the Budget did announce a number of significant and widely reported polices. As noted however these announcements were subsequently overtaken by COVID-19 events, which will have a significant impact on both the UK and ondon’sL economies over the coming months. These will be monitored and analysed by GLA Economics and reported in our publications such as London’s Economy Today.

GLA Economics 10 London’s Economy Today • Issue 211 • March 2020

EconomicIndicator 1: TfL passenger journeysindicators Both bus and underground passenger journeys increased in the latest period zz ATitle total of 275.6Both million bus and passenger underground journeys passenge were registeredr journeys between increased 5 Januaryin the latest and perio1 February,d 43.0 million more than the previous period. 105.8 million of all journeys were Underground journeys while 169.8 million were bus journeys.Bullets Bus• journeys A total rose of 2by75 28.4.6 million million passenger and Underground journeys journeyswere registered by 14.6 betweenmillion. 5 January zz The 13-period-movingand 1 averageFebruary in, 43the.0 total million number more ofthan passenger the previous journeys period. reduced 105.8 from million 276.0 of million all to 275.8 million. journeys were Underground journeys while 169.8 million were bus journeys. Bus journeys rose by 28.4 million and Underground journeys by 14.6 million. zz The methodology used to calculate the number of bus passenger journeys was changed by TfL on 1 April 2007. • The 13-period-moving average in the total number of passenger journeys For a detailed explanation, please see LET issue 58 (June 2007). reduced from 276.0 million to 275.8 million. Source: Transport for• LondonThe methodology used to calculate the number of bus passenger journeys was Latest release: March 2020,changed Next byrelease: TfL on April 1 April2020 2007. For a detailed explanation, please see LET issue 58 (June 2007).

Chart Passenger journeys by mode of transport (adjusted for odd days) 250

200

150

100

Passenger journeys, millions journeys, Passenger 1993/94 1997/98 2001/02 2005/06 2009/10 2013/14 2017/18 Indicator 2: Annual growth in TfL passenger journeys LUSeries1 Series2 Bus Series3 LUSeries4- moving average Series5 Bus - moving averageSeries6 Title The moving average annual change in passenger journeys remained at 0.1% in the Sourcelast periodTransport for London The moving average annual change in passenger journeys remained at 0.1% in the last period Bulletszz The Latest moving• The averageMarch moving 2020 annual average growth annual rate in growththe total rate number in the of passengertotal number journeys of passenger was 0.1% betweenjourneys 5 January release and 1 February,was 0.the1% same between rate as 5in January the previous and period. 1 February, same rate as in the previous period. zz TheNext moving • T heaverageApril moving 2020 annual average growth annual rate of growthbus journeys rate increased of bus journeys from -1.2% increased to -1.1% slightly in the same from period. - zz Conversely,release 1.2 the% moving to -1. average1% at the of Underground same period passenger. journeys went down from 2.1% to 2.0% in the last period.• Conversely, the moving average of Underground passenger journeys went down Source:File Transport from forWorksheet London 2.1% to 1 in2. 0Y:%\0 in Y Drivethe last 2016 period\1 Macro. \LET\Data\LET Charts.xlsx Latestlocation release: March 2020, Next release: April 2020 Chart Annual change in passenger journeys by mode of transport (adjusted for odd days) 12% 10% 8% 6% 4% 2% 0% -2% -4%

Annual percentage change -6% 1995/96 1999/00 2003/04 2007/08 2011/12 2015/16 2019/20

LU - moving average Bus - moving average Total - moving average

SourceGLA EconomicsTransport for London 11

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London’s Economy Today • Issue 211 • March 2020

Indicator 3: Unemployment rates in London and the UK

In theTitle three-month In the period three-month to January period 2020,to January London’s 2020, Londonunemployment’s unemployment rate wasrate 4.5%was 4.5% zz Around 224,400 residents 16 years and over were unemployed in London in the period November 2019 - January 2020.Bullets • Around 224,400 residents 16 years and over were unemployed in London in zz The unemploymentthe rate period in London November was 4.5% 2019 in - thatJanuary period, 2020 the. same rate as in August - October 2019. zz The UK’s unemployment• The un rateemploymen rose slightlyt rate from in London the historic was record4.5% in low th atof period3.8% in, samethe three-month rate as in period to October 2019 to 3.9%August in the - October three-month 2019. period to January 2020 Source: ONS Labour Force• The Survey UK’s unemployment rate rose slightly from the historic record low of 3.8% Latest release: March 2020,in the Next three release:-month April period 2020 to October 2019 to 3.9% in the three-month period to January 2020

Chart Unemployment rate (16 years and over, resident basis) 15%

12%

3% Unemployment rateUnemployment 0%

London UK Indicator 4: Real GVA growth in London and the UK Source ONS Labour Force Survey London’sTitle economy London’s grew economy by 3.7% grew in by the 3.7 %year in the in year the in third the third quarter quarter of of 2019 2019 zz London’sLatest annualMarch real GVA2020 growth fell from 4.5% in Q1 and Q2 2019 to 3.7% in the third quarter of the year, basedreleaseBullets on GLA • Economics London’s estimates. annual real This GVA is thegrowth highest fell fromrate for4.5 %the in third Q1 and quarter Q2 2019 in the to last 3.7 %three in years. zz In the UK, outputthe annual third growth quarter for of Q3 the 2019 year registered, based on the GLA lowest Economics rate since estimates Q1 2018. This (1.0%), is the and was 0.2 Next April 2020 percentage pointshighest down from rate forthe the previous third quarter quarter. in the last three years. release • In the UK, output annual growth for Q3 2019 registered the lowest rate since zz London’s real GVA quarterly estimates for both the period Q1 1999 to Q4 2012 and the most recent quarter have Q1 2018 (1.0%), and was 0.2 percentage points down from the previous quarter. been produced by GLA Economics. Estimates for the intervening period are outturn data from the ONS, which File •Worksheet London’s 3 real in Y: GVA\0 Yquarterly Drive 2016 estimate\1 Macros for \bothLET\ theData period\LET Q1Charts.xlsx 1999 to Q4 2012 doeslocation not publish quarterlyand the most estimates recent for quarter London´s have realbeen GVA produced prior to by 2013. GLA Economics. Estimates Source: ONS and GLA Economicsfor the intervening calculations period are outturn data from the ONS, which does not publish Latest release: Februaryquarterly 2020, Next estimates release: Aprilfor London´s 2020 real GVA prior to 2013. Chart Annual percentage change in real GVA 10% 8% 6% 4% 2% 0% -2% -4% -6% Annual percentagechange -8% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

London UK

GLA EconomicsSource ONS and GLA Economics calculations 12

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London’s Economy Today • Issue 211 • March 2020

Indicator 5: Employment rates in London and the UK London’s annual employment growth was positive in the period November 2019 – January 2020 zz Around 4.8 millionTitle LondonLondon’s residents annual employment over 16 yearsgrowth old was were positive in employmentin the period November during the 2019 three-month – period January 2020 November 2019 – January 2020. zz The rate of annualBullets employment• Around 4. 8growth million inLondon the capital residents was over 2.2% 16 yearsin that old period. were in This employment rate was the highest one in one year and represented a duringsurge thefrom three the-month previous period period November (August 2019 –– January October 2020. 2019) which was -0.4%. • The rate of annual employment growth in the capital was 2.2% in that period. zz In the three-month periodThis Novemberrate was the 2019 highest – Januaryone in one 2020, year andthe representedUK employment a surge rate from grew the annually at a rate of 0.8%, 0.2 percentage pointsprevious below period the (August August – October – October 2019) 2019which wasperiod. -0.4%. • In the three-month period November 2019 – January 2020, the UK employment Source: ONS Labour Force Surveyrate grew annually at a rate of 0.8%, 0.2 percentage points below the August – Latest release: March 2020, NextOctober release: 2019 April period 2020.

Chart

Annual percentage change in employment (16 years and over, resident basis) 6%

-2% Annual percentageAnnual change

-4% Mar-MayMar-MayMar-MayMar-MayMar-MayMar-MayMar-MayMar-MayMar-May Indicator 6: House prices 1993in London1996 1999and the2002 UK2005 2008 2011 2014 2017 London UK

Title LondonSource hONSouse Labour prices Force increased Survey by 1.4% in annual terms in January London house prices increased by 1.4% in annual terms in January Bullets • LatestIn January March 20202020 , the average house price in London was £476,629 while for the zz In January 2020, the average house price in London was £476,629 while for the UK it was £230,830. releaseUK it was £230,830. zz The annual growth rate in average house prices in London was 1.4% in January 2020, down from 1.8% in • NextThe annualApril 2020 growth rate in average house prices in London was 1.4% in January December 2019.release Despite these two recent positive rates, in January the average London house price remained 0.7% below its2020, level indown February from 2018, 1.8% when in Dec theember last period 2019 of. sustainedDespite these upward two growth recent stopped. positive zz Average houseFilerates, pricesWorksheet in in Januarythe UK 5 in rose averageY:\0 by Y Drive 1.3% London 2016 in annual\1 Macrohouse terms\LET price\ Datalast remain \January.LET Charts.xlsxed This 0.7% was below 0.4 percentage its level in points lower locatioFebruary 2018, when the last upward stopped. compared ton the previous month. • Average house prices in the UK rose by 1.3% in annual terms last January. This Source: Land Registry was and 0. ONS4 percentage points lower compared to the previous month. Latest release: March 2020, Next release: April 2020 Chart Annual percentage change in average house prices (seasonally adjusted) 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% Annual percentage change

London UK

GLASource Economics Land Registry and ONS 13

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Indicator 7: PMI Business Activity Index for London andLondon’s the UK Economy Today • Issue 211 • March 2020

Title The recovery in London business activity continues

Bullets • Business activity index at London private firms remained solid in February at The recovery in56. London0, slightly business down from activity 56.5 continuesin January. zz Business activity index at London private firms remained solid in February at 56.0, slightly down from 56.5 in • The UK index was also positive (53.0) in February, a similar level than in January. January (53.3). zz The UK index was also positive (53.0) in February, a similar level to January (53.3). zz The Purchasing• The Managers’ Purchasing Index Managers’(PMI) survey Index shows (PMI) the monthly survey business shows trendsthe monthly at private business sector firms. Index readings abovetrends 50.0 suggest at private a month-on-month sector firms. Index increase readings in activity above on 50.0 average suggest across a firms,month -whileon- readings below indicate a decrease.month increase in activity on average across firms, while readings below Source: IHS Markit indicate a decrease. Latest release: March 2020, Next release: April 2020 Chart PMI Business Activity Index (50 indicates no change on previous month) 70 65 60 change - 55 50 45 40 Index, 50 = no 50 =Index, 35 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20

London UK Indicator 8: PMI New Business Index for London and the UK

NewSource business IHS activity Markit in London decreased but remained solid in February Title New business activity in London decreased but remained solid in February zLatestz The PMI NewMarch Business 2020 Index was 54.2 in London last February, down from 56.9 in January. zreleasez BulletsFor the UK, •the Thelevel PMI of this New index Business in February Index was was 52.3, 54.2 downin London from 54.1last Februain Januaryry, down which up was from the highest level since June 2018.5 6.9 in January. zNextz An index readingApril• For2020 above the 50.0UK, indicatesthe level anof increasethis index in new in Februa orders ryfrom was the 52.3, previous down month. from 54.1 in Source:release IHS Markit January which was the highest level since June 2018. Latest release: March• An2020, index Next readingrelease: April above 2020 50.0 indicates an increase in new orders from the File Worksheetprevious 7 inmonth. Y:\0 Y Drive 2016\1 Macro\LET\Data\LET Charts.xlsx location Chart PMI New Business Index (50 indicates no change on previous month) 70 65 60 change - 55 50 45 40 Index, 50 = no 50 =Index, 35 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20

London UK

GLASource Economics IHS Markit 14

Latest March 2020 release

Next April 2020 release

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London’s Economy Today • Issue 211 • March 2020

Indicator 9: PMI Employment Index for London and the UK

Title Employment increased across the majority of London private sector firms last Employment increasedFebruary, acrossalthough the at a majority slower pace of London private sector firms last February, although at a slower pace zz TheBullets Employment • IndexThe Employment for London wasIndex 52.9 for in London February, was down 52.9 fromin Febru 54.0ary in, downJanuary. from 54.0 in zz The index also fell Januaryfor the UK. in February to 50.6 from 51.7 in the previous month. zz The PMI Employment• The Indexindex showsalso fell the for net the balance UK in ofFebruary private tosector 50.6 firms from 5of1.7 the in monthlythe previous change in employment. month. Readings above 50.0 suggests an increase, whereas a reading below indicates a decrease in employment from the • The PMI Employment Index shows the net balance of private sector firms of previous month. the monthly change in employment. Readings above 50.0 suggests an Source: IHS Markit increase, whereas a reading below indicates a decrease in employment from Latest release: March 2020,the Nextprevious release: month April. 2020

Chart PMI Employment Index (50 indicates no change on previous month) 65 60 change

- 55 50 45 40 Index, 50 = no 50 =Index, 35 Indicator 10: RICS house prices for London and England and Wales

Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Title Property surveyors reported in FebruaryLondon strongestUK rise in house prices since May

2014 Source IHS Markit MostBullets property • surveyorsIn the three reported months a torise February in house, the prices net balancein February of property since Maysurveyors 2014 Latest March 2020 zz In the three monthsreporting to February, a rise thein housenet balance price sof was property 39, up surveyors from 27 reporting in the three a rise monthsin house to prices was 39, up release January. This was the highest level of the index since May 2014. from 27 in the three months to January. This was the highest level of the index since May 2014. zz For England •and ForWales, England the RICS and house Wales prices, the RICS net balancehouse prices index netalso balance increased index from also 18 increasedin the three months to Next Aprilfrom 2020 18 in the period November 2019 – January 2020 to 29 in the period January 2020 to 29 in the three months to February 2020. The February figure was the highest one since April release December 2019 – February 2020. The February figure was the highest one 2016. since April 2016. zz TheFile net balanceWorksheet index measures 9 in Y: \the0 Y proportion Drive 2016 of\1 respondents Macro\LET\ reportingData\LET a Charts.xlsx rise in prices minus a decline. location • The net balance index measures the proportion of respondents reporting a rise Source: Royal Institutionin ofprices Chartered minus Surveyors those reporting a decline. Latest release: March 2020, Next release: April 2020 Char t RICS house prices net balance (change in prices during next three months, seasonally adjusted) 100 80 60 40 20 0 -20

Net balance -40 -60 -80 -100 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20

London England and Wales

GLASource Economics RICS Residential Market Survey 15

Latest March 2020 release

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London’s Economy Today • Issue 211 • March 2020 Indicator 11: RICS house price expectations for London and England and Wales

Title Expectations of house price rises in London decreased in February

NetBullets expectations • In ofthe house three monthsprice rises to February in London, sur veyorsdecreased reported in February a fall in the expectation zz In the three monthsof London to February, housing surveyors prices reported(27) when a fall compared in the net to expectation previous month of London (42). housing prices (27) when compared• Despite to the previous this fall, month London (42). index continued over the index for England and Wales zz Sentiment in Englandin Febru andary Wales. has been positive for four consecutive months. In February, it was 22, down from 30 in January.• Sentiment in England and Wales has been positive for four consecutive zz The net balancemonths index measures. In February the proportion, it was 22 of, down respondents from 30 reporting in January a rise. in prices minus those reporting a decline. • The net balance index measures the proportion of respondents reporting a rise Source: Royal Institutionin prices of Chartered minus Surveyors those reporting a decline. Latest release: March 2020, Next release: April 2020 Chart RICS house prices expectations net balance (change in prices during next three months, seasonally adjusted) 100 80 60 40 20 0 -20

Net balance -40 -60 -80 -100 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20

London England and Wales Indicator 12: Consumer confidence in London and the UK

Source RICS Residential Market Survey ConsumerTitle confidenceConsumer remained confidence negativeremained negative in London in London in February in February zzLatestThe consumer March confidence 2020 index remains negative in London. This index was -3 in February, broadly unchanged Bullets • The consumer confidence index remains negative in London. This index was - releasefrom -4 in January.3 in February, broadly unchanged from -4 in January. zz Sentiment for the• UKSentiment remained for negative the UK remainedin February negative as well in (-7), Febru butary slightly as well higher(-7), but than slightly it was in January (-9). NextThe UK hasApril not shown2020higher a positive than it was index in January score since (-9) .January The UK has2016. not shown a positive index score zzreleaseThe GfK index of consumersince January confidence 2016. reflects people’s views on their financial position and the general economy over the past year• andThe inGfK the indexnext 12of months.consumer A scoreconfidence above zeroreflects suggests people’s positive views opinions; on their a score below zero Fileindicates negativeWorksheet sentiment.financial 11 in position Y:\0 Y and Drive the 2016general\1 economyMacro\LET over\ theData past\LET year Charts.xlsx and in the next location 12 months. A score above zero suggests positive opinions; a score below zero Source: GfK NOP on behalfindicates of the European negative Commissionsentiment. Latest release: February 2020, Next release: March 2020 Chart Consumer confidence barometer 30 20 10 0 -10 Index -20 -30 -40 -50

London UK

GLA EconomicsSource GfK NOP on behalf of the European Commission 16

Latest February 2020 release

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London’s Economy Today • Issue 211 • March 2020

Regional, sub-regional and local Gross Value Added estimates for

ByLondon, Eduardo Orellana, Economist 1998-2018

In December 2019, the Office for National Statistics (ONS) released provisional estimates of regional, sub- regional and local gross value added (GVA) for 20181 and updated historic data from 1998. This supplement presents the main London findings from this release. Using the balanced approach as measued by GVA(B), London’s total GVA was above £436.5 billion in 2018, up 2.1% in real terms on 2017. GVA(B) became a national statistic in November 2018, meaning that its methodology has been assessed by the Office for Statistics Regulation as fully compliant with the Code of Practice for Statistics. This approach takes both the income approach (GVA(I)) and the alternative production approach (GVA(P)) to measuring the economy and combines them into a single estimate which allows for more granular breakdowns and for the data to be presented in constant prices. In 2018, London’s GVA(B) accounted for 23.7% of the UK’s total output, the largest share of the historic series – along with year 2016 – up from 19.2% in 1998. London was also the region in the UK with the highest average GVA(B) per hour worked – a usual measure of labour productivity – at £2,327 for the same year, 31.4% higher than the UK average which was £1,771. As can be observed in Figure A1, over two-thirds of London’s GVA(B) was produced in Inner London in 2018, with Inner London - West alone accounting for 44.5% of the total. Indeed, Inner London - West had a higher GVA(B) than all UK regions or nations except for the South East (and of course, London). Inner London - West also saw the greatest change in its relative importance to London’s economy having previously accounted for 39.2% of London’s GVA(B) in 1998. The increase in Inner London – East was only 2.2 percentage points. In contrast, all parts of Outer London declined in importance by 2-3 percentage points compared to 1998 despite absolute growth in all London sub-regions.

1 ONS, December 2019, ‘Regional economic activity by Gross Value Added (balanced), UK: 1998 to 2018’.

GLA Economics 17 London’s Economy Today • Issue 211 • March 2020

100% Figure A1: Geographic 9.9% 8.7% 7.2% breakdown of 90% 8.3% 11.0% 9.6% headline2 real London 80% 16.2% 16.3% GVA(B) 1998 - 2018 70% 18.3% Source: Regional Accounts, 60% 23.8% ONS 23.9% 50% 21.6%

40%

30% 44.5% 20% 39.2% 41.5%

10%

0% 1998 2008 2018 Inner London - West Inner London - East Outer London - West and North West Outer London - East and North East Outer London - South Going into the more detailed geographical breakdown, Figure A2 shows that Westminster and the City of London were the local authorities (LAs) with the highest output in London in 2018 (£66.2 and £66.1 billion, respectively). These two LAs alone accounted for above 30% of London’s GVA(B). By contrast, Lewisham with £3.6 billion and Barking and Dagenham with £3.3 billion were the London LAs with the lowest GVA(B) in the same year, accounting for 1.6% of London’s total output.

70 Figure A2: Real 65 GVA(B) by London 60 55 local authority in 2018 50 45 Source: ONS 40 35 30 £ billions£ 25 20 15 10 5 0 Brent Ealing Sutton Barnet Bexley Enfield Merton Harrow Bromley Islington Croydon Camden Hackney Lambeth Newham Haringey Havering Hounslow Hillingdon Lewisham Redbridge Southwark Greenwich Wandsworth Westminster City of London Tower Hamlets Waltham Forest Kingston upon Thames Barking and Dagenham Richmond upon Thames Kensington and Chelsea Hammersmith and Fulham

The real GVA(B) growth rates between 1998 and 2018 among the 33 London’s LAs are presented in Table A1. All London LAs experienced growth in the mentioned period although differences are evident. The fastest rates of real GVA(B) growth were seen in Camden and Hounslow at 139% and 132%, respectively. In contrast, Croydon and Barking and Dagenham saw the slowest rates of real GVA(B) growth of 21% and 11%, respectively.

2 UK includes Extra-Regio (which comprises compensation of employees and gross operating surplus which cannot be assigned to regions)

GLA Economics 18 London’s Economy Today • Issue 211 • March 2020

Table A1: Real GVA(B) Rank LA % Rank LA % Rank LA % increase increase increase growth rate of London’s LAs 1998- 1 Camden 139% 12 Wandsworth 75% 23 Ealing 40% 2018 2 Hounslow 132% 13 Richmond upon 62% 24 Havering 38% Thames Source: ONS and GLA 3 Hackney 128% 14 Newham 59% 25 Bexley 35% Economics’ calculations 4 Tower Hamlets 122% 15 Kingston upon 51% 26 Hillingdon 33% Thames 5 City of London 118% 16 Brent 51% 27 Bromley 32% 6 Hammersmith 110% 17 Waltham Forest 49% 28 Lewisham 30% and Fulham 7 Islington 105% 18 Greenwich 43% 29 Harrow 29% 8 Southwark 104% 19 Barnet 43% 30 Merton 28% 9 Kensington and 92% 20 Redbridge 43% 31 Sutton 27% Chelsea 10 Lambeth 86% 21 Enfield 40% 32 Croydon 21% 11 Westminster 80% 22 Haringey 40% 33 Barking and 11% Dagenham

GVA(B) data by London sectors for the years 1998, 2008 and 2018 are presented in Table A2. In 2018, over 29% of London’s GVA was generated by the Real estate activities (14.9%) and the Financial and insurance activities (14.4%) sectors combined, totalling £127.9 billion. The value of these industries represented 10.8% and 15.2%, respectively, of London’s total GVA(B) in 1998. Professional, scientific and technical activities and Information and communication industries have also played an important role in London’s economy in the last couple of decades, reaching 13.3% and 12.2% of the output in 2018, respectively, compared to 9.2% and 7.8% of London’s GVA in 1998. In fact, as a proportion of London’s total output, the Information and communication sector has grown more than any other industry in the UK since 1998, followed by Real estate activities and the Professional, scientific and technical industry. In contrast, Manufacturing had the largest decrease from 5.2% in 1998 to 1.9% in 2018. Table A2: Headline 1998 2008 2018 % of % of % of real GVA(B) in London Industry Industry Industry London's London's London's GVA (£b) GVA (£b) GVA (£b) by industry (£ billion economy economy economy and as per cent of 3 Primary & utilities £2.9 1.2% £4.8 1.5% £4.2 1.0% total London GVA), Manufacturing £12.5 5.2% £8.7 2.6% £8.2 1.9% 1998, 2008 and 2018 Construction £12.3 5.1% £14.1 4.2% £20.6 4.7% Wholesale and retail trade; repair £25.7 10.6% £26.0 7.8% £32.7 7.5% Source: Regional Accounts, of motor vehicles ONS Transportation and storage £15.3 6.3% £16.3 4.9% £18.2 4.2% Accommodation and food service £7.5 3.1% £9.5 2.9% £12.4 2.8% activities Information and communication £18.9 7.8% £33.4 10.0% £53.3 12.2%

Financial and insurance activities £36.7 15.2% £62.2 18.7% £62.7 14.4%

Real estate activities £26.2 10.8% £47.8 14.4% £65.2 14.9% Professional, scientific and £22.2 9.2% £36.7 11.0% £57.9 13.3% technical activities Administrative and support service £11.2 4.6% £13.8 4.2% £26.9 6.2% activities Public administration and defence; £13.9 5.7% £14.6 4.4% £16.5 3.8% compulsory social security Education £14.7 6.1% £16.6 5.0% £19.7 4.5% Human health and social work £9.8 4.1% £15.3 4.6% £20.9 4.8% activities Arts and other services4 £11.7 4.9% £12.8 3.8% £17.1 3.9%

Total £241.3 100.0% £332.8 100.0% £436.5 100.0%

3 This includes the following sectors: Agriculture, Forestry and Fishing; Mining and Quarrying; Electricity, gas, steam and air conditioning supply; and Water supply, sewerage, waste management and remediation activities. 4 This category includes the subsectors: ‘Arts, entertainment and recreation’, ‘Other service activities’, and ‘Activities of households’.

GLA Economics 19

1 This includes the following sectors: Agriculture, Forestry and Fishing; Mining and Quarrying; Electricity, gas, steam and air conditioning supply; and Water supply, sewerage, waste management and remediation activities. 2 This category includes the subsectors: ‘Arts, entertainment and recreation’, ‘Other service activities’, and ‘Activities of households’. London’s Economy Today • Issue 211 • March 2020

The ONS GVA(B) data by industry also highlights predictable, major differences in sectoral spread between Inner and Outer London. In 2018, Manufacturing was concentrated in Outer London (accounting for 78.1% of all London’s manufacturing) while Inner London produced 94.7% of London’s GVA in Financial and insurance activities; 83.9% of Professional, scientific and technical activities; and 76.9% of the Information and communication output. To sum up, the latest ONS GVA(B) statistics show that London remains as the largest economy of any region or nation of the UK, with more importance than ever for the national economy. In 2018, London’s real output grew at a moderate rate although below its historic standards. Some industries such as Real estate; Information and communication; and Professional, scientific and technical activities especially contributed to London’s growth in the last two decades, although this growth is also increasing the divergence between Inner and Outer London. If you found this overview of London’s output interesting further details on London’s economy can be found on our publications page.

GLA Economics 20 London’s Economy Today • Issue 211 • March 2020

WeOur publish regularlylatest on the state publications of London’s economy, providing the latest economic data for London and interpret how this may affect policy. This includes analysis of recent developments in London’s economy and forecasts for the next couple of years. We provide analysis on sectors of the economy including tourism, retail, housing, health, science, technology and more. We analyse recent developments in London’s labour market, by sector and borough. View all the GLA Economics publications on our website.

The Evidence Base for London’s Local Industrial Strategy - Final report This is the final report on the evidence base that is informing and supporting the development of London’s Local Industrial Strategy, following on from the interim report published in August 2019. It presents clear, robust and comprehensive evidence on London’s economy with a view to supporting the overall objective of achieving inclusive growth in London. It reports on London’s strengths, key constraints, issues and risks for the five foundations of productivity introduced by the Industrial Strategy White Paper (Business Environment, People, Infrastructure, Ideas and Place), while also highlighting the linkages between the economy of London and the rest of the UK. Download the full publication.

Transport expenditure in London This current issues note looks at the case for continuing transport expenditure in London. London spills over its administrative boundaries, and there are 2 million more people in it every day than its 8.8 million residents. The city relies on public transport, and so public investment – 58% of all journeys on public transport in Britain are at least in part in London. People make far more use of public transport than elsewhere in the country, and increasingly so. Download the full publication.

London’s Economic Outlook: Autumn 2019 GLA Economics’ 35th London forecast suggests that: zz London’s GVA growth rate is forecast to be 1.8% in 2019. The growth rate is expected to decrease to 1.1% in 2020, before increasing to 1.8% in 2021. zz London is forecast to see increases in the number of workforce jobs in 2019, 2020 and 2021. zz London’s household income and spending are both forecast to increase over the next three years. Download the full publication.

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London’s Economy Today is published towards the end of every month. It provides an overview of the current state of the London economy, and a 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.

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About GLA Economics GLA Economics provides expert advice and analysis on London’s economy and the economic issues facing the capital. Data and analysis from GLA Economics provide a sound basis for the policy and investment decisions facing the Mayor of London and the GLA group. The unit was set up in May 2002.