London's Economy Today

London’s Economy TodayIssue 216 | August 2020

UK economic growth falls sharply as concern increases

Also in this issue for businesses in the The recovery has begun...... 2 While people are gradually going Central Activities out more in London, they are still travelling into the CAZ much less...... 3 Zone London’s labour market may also be more at risk when the furlough By Mike Hope, Economist, and Eduardo Orellana, Economist scheme ends...... 5 Local authorities are also under UK GDP fell by more than a fifth in the second financial pressure...... 6 quarter of 2020. This is the biggest fall in Next year’s commuter rail fare quarterly GDP on record, and the UK has officially increase lowest for several entered a recession with two successive quarters years...... 7 of negative growth. The decline is steeper than London had strong growth in for France and Germany although this may in part 2019...... 7 be explained due to the UK’s later lockdown as Economic indicators...... 9 the virus likely reached the UK later. Amongst the An update on London’s trade... 15 major European economies only Spain has suffered Our latest publications...... 19 comparably with a slightly larger fall in output over the first half of the year (Figure 1). Datastore The main economic indicators for Of other major world economies so far the US has contracted by a London are available to download similar extent to Germany, while China’s recovery in the second quarter from the London Datastore. was such that it grew over the first half of the year. London’s Economy Today • Issue 216 • August 2020

Figure 1: Growth, Q1, 15.0% Q2, and H1 2020 in key world economies 10.0% Source: ONS, Eurostat, OECD, 5.0% and US Bureau of Economic 0.0% Affairs

-5.0%

-10.0%

-15.0%

-20.0%

-25.0% UK France Germany Spain USA China

Q1 Q2 H1

The recovery has begun GDP grew by 8.7% in June according to monthly data from the Office for National Statistics (ONS) (although this data can be highly volatile). An ONS Deputy National Statistician, Jonathan Athow commented, “the economy began to bounce back in June with shops reopening, factories beginning to ramp up production and housebuilding continuing to recover. Despite this, GDP in June still remains a sixth below its level in February, before the virus struck”. Business confidence is improving, and in July for the first month since February business activity increased across a majority of businesses in London (although this is still not the case for the employment index) – as reported in the indicator section of this publication. There remains, though, considerable uncertainty around the future path of the economy. The Bank of England (BoE) in its latest quarterly Monetary Policy Report has become more positive in its assessment of the prospects for the UK economy. It is estimating in its central forecast a contraction for the whole of 2020 of -9.5%, and a recovery of 9.0% growth in 2021, and the economy exceeding its level in 2019 by 2022. In contrast, the National Institute of Economic and Social Research (NIESR) is a little more pessimistic in its forecast. It expects the economy to contract by -10.1% this year, and not to have recovered its 2019 level in 2022 (Figure 2). The differences in the forecasts will reflect in part views on how the pandemic will evolve, and the effectiveness of public policy measures in tackling the public health and economic consequences. Notably, NIESR has concerns about scarring in the labour market, and the risk of rising long-term unemployment. In mitigation, it has argued for the extension of the Coronavirus Job Retention Scheme from October 2020 to June 2021.

GLA Economics 2 London’s Economy Today • Issue 216 • August 2020

10.0% Figure 2: UK GDP growth forecasts 2020-22, and 5.0% cumulative growth 2020 onwards, BoE

0.0% and NIESR Source: BoE Monetary Policy Report, and National Institute -5.0% Economic Review, both August 2020

-10.0%

-15.0% 2019 2020 2021 2022

BoE NIESR cumulative BoE cumulative NIESR More comfortingly, the Financial Policy Committee of the BoE, “judges banks to be resilient to a very wide range of possible [future] outcomes”. The Financial Stability Report notes that, “UK households and businesses have needed support from the financial system to weather the economic disruption associated with Covid-19. Reflecting the resilience that has been built up since the global financial crisis and, alongside the extraordinary policy responses of the Government and of the Bank of England, the financial system has so far been able to provide that support”. As a further point there are gainers as well as losers from the changes in the economy. Exceptionally for a major Western economy, the US stock market by mid-August had recovered all of its losses earlier in the year. The big technology companies of Alphabet (Google’s parent), Amazon, Apple, Facebook, and Microsoft account for a quarter of the rally, and a fifth of the S&P index. Perhaps needless to say these companies are not representative of the broader US economy.

While people are gradually going out more in London, they are still travelling into the CAZ much less Week-on-week there is more recreational activity in London (Figure 3). Noticeably there has been an increase in restaurant bookings on Mondays – Wednesdays since the Eat Out to Help Out scheme came into effect earlier this month. Across the UK the Government estimated that people had ordered 64m discounted meals in the first three weeks in August, and 85,000 restaurants were taking part.

GLA Economics 3 London’s Economy Today • Issue 216 • August 2020 Retail and recreational activity in London Grocery & pharmacy Retail & recreation Restaurant bookings Social venues Figure 3: Retail and recreational activity in London, March – August 2020 100% Source: Grocery and retail metrics from Google Mobility, Grocery & pharmacy

Lockdown social venues (bars, event Restaurant bookings Social Distancing spaces etc) from Purple public Some workers returnSome workers Retail & recreation Scool u etc cloe Scool 50% Social venues Wifi and restaurant bookings Shops open, household bubbles

Schools open, small groups outside from OpenTable People with symptoms should self−isolate People Note: Vertical red lines show changes in social distancing

0% rules. Vertical grey bands show weekends and public 02 Mar 16 Mar 30 Mar 1 2 11 May 25 May 08 Jun 22 Jun 0 ul 20 ul 03 Aug 17 Aug holidays. Grocery and retail metrics from Google Mobility, social venues (bars, event spaces etc) from Purple public Wifi and restaurant bookings from OpenTable ThereVertical red remains, lines show changesthough, in social amongst distancing manyrules Londoners considerable reluctance to go out and do things. Across a rangeVertical greyof bandssocial show activities weekends and the public predominant holidays tendency is to engage less than before even at a future time when the public health risk has been further diminished (Figure 4). Figure 4: Intentions 60% to engage in social activities when the 50% threat from the

40% Coronavirus has reduced 30% Source: YouGov survey for GLA Opinion Research, 20% fieldwork 28-31 July 2020

10% Note: figure does not include people for each activity who 0% intend to engage the same as go to go to large go to non- use sports visit use public visit cultural before or who don’t know restaurants events essential facilities family/friends transport venues shops

more than before less than before

The Centre for Cities High streets recovery tracker is reporting that footfall in London is recovering the slowest of all the cities across the UK, and in July was at 23% of its level before the pandemic. One of the reasons people are staying at home is that homeworking is more common in London than any other region – the ONS estimates that 57.2% of workers in the Capital are doing this some of the time. The indicator section of this publication reports that bus and tube travel has declined dramatically in the last few months, although it has recovered slightly recently. The recovery may also not be even across all areas of London. This is particularly acute for the central local authorities of Camden, the City of London, and Westminster. Thirty-one per cent of the capital’s employee jobs of 5.2m, or 1.58m in 2018, are here while 6% of London’s population of 8.9m in 2018, or 0.53m, live here according to ONS figures. That is, there were over 1m people working in central London, who did not live there, and 0.5m such people in the City of London alone. This is before taking into consideration international and domestic tourists. Although 24% of respondents to a YouGov survey for the GLA in July reported that they were likely to travel into central London in the first week in August, 66% said they were not likely. Around half of the 66% thought they would have travelled into central London if it had not have been for the virus – that is around

GLA Economics 4 London’s Economy Today • Issue 216 • August 2020 a third of Londoners are not currently travelling into central London who would otherwise have done this. Additionally, there are fewer commuters from outside London, and fewer tourists visiting London. The sums of money not spent by people not coming into London have the potential to be very large. The Centre for Economics and Business Research has calculated that the pandemic has resulted in £2.3 billion of spending in shops, pubs and eateries near London employment hubs being lost or displaced between March and June.

London’s labour market may also be more at risk when the furlough scheme ends

The London and the UK labour markets continue to be buoyant. For the three months to June the London employment rate was 76.5%, and the UK rate was 76.4%. At the same time major employers have continued to announce job losses including Gatwick Airport, William Hill, Dixons Carphone, Marks and Spencer, and Pizza Express. One in three British businesses are planning job cuts in the third quarter of this year according to a survey conducted by the Chartered Institute of Personnel and Development. Confidence is at its lowest since the survey started in its current form in 2013. More positively, almost half of employers are expecting to take on new recruits. The growth in people on Universal Credit (UC) has been higher in London than the rest of Great Britain, and higher for the under 25s than the over 25s (Figure 5). The recipients who are still in employment are the people who are still likely to be furloughed (at the end of June there were 1.3m furloughed workers in London, and some will not have entitlement to UC). For London additional recipients in this group are around half the additional recipients not in employment.

Figure 5: Percentage 180% growth in people 20,000 160% on Universal Credit 140% between March

120% and June 2020, in 44,000 135,000 242,000 employment and not 100% 129,000 780,000 in employment, under 1,238,000 80% 262,000 25s and 25 and over,

60% London and Great Britain – data labels 40% are absolute change 20% Source: DWP Stat-Xplore 0% 16-24 not in 16-24 in employment 25 and over not in 25 and over in employment employment employment

London Great Britain

GLA Economics 5 London’s Economy Today • Issue 216 • August 2020

And the impact is not even across the city. It is more common for employees in an arc from the North West to the East of London to be furloughed (on the Coronavirus Job Retention Scheme) than other parts of the city (Map 1). Jonathan Portes, a professor at King’s College London, has commented, “the most visible economic impacts of the pandemic are in central London, with deserted offices and shuttered shops. But in human terms it is the poorer parts of outer London, from Brent to Newham, that have suffered most from the slowdown. While most London office workers can work from home, those employed in service sectors dependent on their presence – cleaners and security guards, sandwich shop assistants and dry cleaners – generally cannot. They tend to be disproportionately younger, lower paid, from ethnic minority backgrounds, and live in a swathe of boroughs from North West to East London”. Map 1: Take-up amongst eligible employees by residence of London local authority of the Coronavirus Job Retention Scheme for claims up to 31 July 2020 Source: YHMRC Coronavirus Job Retention Scheme statistics

Local authorities are also under financial pressure

The public health and economic effects of COVID-19 are simultaneously increasing spending and reducing income for local authorities. There are additional costs from the provision of personal protective equipment, notably for adult social care, and extra responsibilities to house rough sleepers, support those shielding at home, and help with the testing, tracing, and control of COVID-19 outbreaks. There are threats to revenue in the ability to raise council tax, business rates, and other income streams such as parking charges. The Institute for Fiscal Studies (IFS) has this month published an assessment of these pressures. It notes there is considerable uncertainty around the estimates, which derive from local authorities, and despite some additional support from the Government there is a clear conclusion that there will still be a significant funding shortfall this year, estimated at £2bn (Figure 6).

GLA Economics 6 London’s Economy Today • Issue 216 • August 2020

Figure 6: Baseline 1.0 forecast of unmet spending and non- 0.5 tax income pressures for English local 0.0 authorities in 2020/21, £ billion £bn -0.5 Source: Institute for Fiscal Studies

-1.0

-1.5 spending pressures non-tax income loss in-year pressures grant funding other non-grant support shortfall in 2020/21

The IFS estimates that the shortfall in London will be greater at 4.8% of adjusted revenue expenditure than for England as a whole where the corresponding ratio is 3.6%. London is more likely than other areas to face non-tax income losses as it is relatively more densely populated, and relies on at risk income sources such as parking fees. The shortfall can only be funded through drawing down reserves, reduced services, or additional funding from Government. London boroughs have below average reserves (as a proportion of adjusted revenue expenditure) to meet the funding shortfall – 30% compared with 48% for England. So, London is comparatively more reliant on further Government support to avoid further cuts in services.

Next year’s commuter rail fare increase lowest for several years Price inflation crept up with the Consumer Prices Index rising by 1.1% in July, up from 0.8% in June. The largest contribution to change was from clothing and footwear. There was also less price discounting in July this year compared with 2019. The July Retail Price Index (RPI) is used to set the increase in regulated rail fares for next year. This index rose to 1.6% in July from 1.1% in June. This is the lowest July estimate for the RPI since 2015. As a result commuters will see a 1.6% rise in fares from January.

London had strong growth in 2019 Despite the current risks to London’s development and the uncertainty caused by the process of exiting the EU, London entered the pandemic on a reasonable footing. The capital thus had strong growth in 2019 at 5.4%, according to figures released by the ONS. This was the highest rate since 2007 and compares with a rate of 2.3% in 2018. In contrast, the UK grew at 1.3% in 2018, and 1.5% in 2019 (Figure 7).

GLA Economics 7 London’s Economy Today • Issue 216 • August 2020

Figure 7: London and 8.0% UK GDP growth rates,

6.0% 1999-2019 Source: Office for National 4.0% Statistics

2.0%

0.0%

-2.0%

-4.0%

-6.0% 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

London UK GLA Economics will continue to monitor and report on London’s challenges in our publications which can be found on our publications page.

GLA Economics 8 London’s Economy Today • Issue 216 • August 2020

Indicator 1: TfL passenger journeys

Title In the period 28 June to 25 July 2020, passenger journeys in London recovered Economicslightly but remained indicators low by historical standards In July, passenger journeys in London recovered slightly but remained low by historical standards Bullets • Only 88.1 million passenger journeys were registered between 28 June and 25 zz Only 88.8 million passengerJuly this yearjourneys, 28.6 millionwere registered more than inbetween the last period28 June (31 and May 25 – 27 July June this 2020) year, 28.6 million more than in the last periodbut (31 still Mayvery low– 27 from June a historic 2020) perspectivebut still very. As low a reference, from a historicpassenger perspective. journeys As a reference, passenger journeys in February – –when when there there were were no lockdown no lockdown restrictions restrictions – were 27– were1.4 million 271.4. million. 22.2 million of all journeys were• InUnderground the period 28journeys June -and 25 66.6July million2020, 22.2were million bus journeys. of all journeys Bus journeys were until 11 July are estimates of passengersUnderground boarding journeys as the andclosure 66.6 ofmillion the frontwere bus doors journeys. to protect Bus journeys the drivers until 11prevented validation of July are estimates of passengers boarding as the closure of the front doors to entry. The reduced demandprotect the on drivers both modesprevented follows validation from of the entry Government. The reduced advice demand not on to both use public transport except for essential journeys.modes follows from the Government advice not to use public transport except for zz The 13-period-movingessential average journeys. in the total number of passenger journeys continued to fall from 212.2 million in the period 31 May• –The 27 June13-period 2020-moving to 196.8 average in the in period the total 28 Junenumber - 25 of July passenger 2020. journeys continued to fall from 212.2 million in the period 31 May – 27 June 2020 to 196.8 zz The methodology usedin the to period calculate 28 June the -number 25 July 2020of bus. passenger journeys was changed by TfL on 1 April 2007. For a detailed explanation,• The methodology please see used LET to issue calculate 58 (June the number 2007). of bus passenger journeys was Source: Transport for Londonchanged by TfL on 1 April 2007. For a detailed explanation, please see LET issue 58 (June 2007). Latest release: August 2020, Next release: September 2020 Chart Passenger journeys by mode of transport (adjusted for odd days) 200

150

100

50

0 Passenger journeys, millions journeys, Passenger 1993/94 1997/98 2001/02 2005/06 2009/10 2013/14 2017/18

LUSeries1 Series2 Bus Series3 Indicator 2: Annual growth in LUTfLSeries4- moving passenger average journeysSeries5 Bus - moving averageSeries6

The movingTitleSource average TheTransport moving annual for average London change annual in changepassenger in passenger journeys journeys in London in London reached reached a anew new historic low historic low in the period 28 June to 25 July 2020 in July 2020Latest August 2020 release zz The movingBullets average• The annual moving growth average rate annual in the growth total number rate in the of totalpassenger number journeys of passenger was -28.6%journeys in the period 28 June toNext 25 July 2020,Septemberwas down -28.6 2020 from% in -23.2%the period in the28 Juneperiod to 31 25 May July –2020 27 June, down 2020, from and -23.2 reached% in the a new historic low. zz The movingrelease averageperiod annual 31 growth May – 27rate June of bus 2020 journeys, and reache decreasedd a new from historic -22.4% low. to -27.1% between the above- mentioned periods.Likewise,• The moving the average moving annual average growth of Underground rate of bus journeys passenger decreased journeys from went -22.4 down% from -24.6% to -30.9%File in those Worksheetperiods.to -27.1 1% in betweenY:\0 Y Drive the 2016above\1- mentionedMacro\LET \periodsData\LET. Charts.xlsx location zz The reduced demand• Likewise on both, the modes moving follows average from of the Underground Government passenger advice not journeys to use wentpublic down transport except for essential journeys. from -24.6% to -30.9% in those periods. • The reduced demand on both modes follows from the Government advice not to Source: Transport for Londonuse public transport except for essential journeys. Latest release: August 2020, Next release: September 2020 Chart Annual change in passenger journeys by mode of transport (adjusted for odd days) 12% 8% 4% 0% -4% -8% -12% -16% -20% -24% -28%

Annual percentage change -32% 1995/96 1999/00 2003/04 2007/08 2011/12 2015/16 2019/20

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

GLA EconomicsSource Transport for London 9

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London’s Economy Today • Issue 216 • August 2020

Indicator 3: Unemployment rates in London and the UK

In the second quarter of the year, London’s unemployment rate remained broadly unchanged - Title In the second quarter of the year, London’s unemployment rate remained broadly despite the very largeunchanged output -fall despite - due the very to largethe output Coronavirus fall - due to Jobthe new Retention Coronavirus JobScheme Retention Scheme created by the Government zz More than 235,200 residents 16 years and over were unemployed in London in the period April-June 2020. zz The unemploymentBullets rate• inMore London than 2was35,2 4.6%00 residents in that 16 period,years and broadly over were unchanged unemployed comparedin London to the first quarter of the year (4.7%). Thanks toin furloughing the period April on-June the 2020 Coronavirus. Job Retention Scheme London’s unemployment rate • The unemployment rate in London was 4.6% in that period, broadly did not soar in Q2 2020 whenunchanged there comparedwas a very to largethe first fall quarter in output. of the A yearsmall (4.7%) increase. Thanks in London’s to inactivity rate (0.4pp) might have had anfurloughing impact as well.on the The Coronavirusclaimant countJob inRetention London increasedScheme London’s by 145% between March and June 2020. unemployment rate did not soar in Q2 2020 when there was a very large fall in output. A small increase in London’s inactivity rate (0.4pp) might have had zz Similarly, the UK’s unemploymentan impact rateas well. was The 3.9% claimant in thecount second in London quarter increased of 2020,by 145% the between same rate as in the first quarter. March and June 2020. • Similarly, the UK’s unemployment rate was 3.9% in the second quarter of Source: ONS Labour Force Survey2020, the same rate as in the first quarter. Latest release: August 2020, Next release: September 2020 Chart Unemployment rate (16 years and over, resident basis) 15%

12%

9%

6%

3% Unemployment rate 0%

London UK

Source ONS Labour Force Survey London’s economy is estimated to have fallen by 18.7% annually in the second quarter of the LatestIndicator August 4: Real 2020 GVA growth in London and the UK year, followingrelease an annual contraction of 1.5% in Q1 2020 zz London’s real GVATitle registered London’s the deepesteconomy iscontraction estimated to ofhave the fallen historic by 18.7% series annually in Q2 in 2020the second (-18.7% annually), Next Septemberquarter of2020 the year, following an annual contraction by 1.5% in Q1 2020 which adds torelease the -1.5% annual growth rate seen in the first quarter of the year. Both rates are GLA Economics estimates. This historicBullets negative• London’s shock real caused GVA registered by the the Covid-19 deepest contraction outbreak of thetakes historic place series after in Q2 London’s real output File Worksheet 3 in Y:\0 Y Drive 2016\1 Macro\LET\Data\LET Charts.xlsx grew by 5.4% in 2019 – according2020 (- to18.7% ONS annually), data - which which adds is theto the highest -1.5% annual growth growth rate rate since seen 2007 in despite last year’s location the first quarter of the year. Both rates are GLA Economics estimates. This Brexit-related uncertainty. historic negative shock caused by the Covid-19 outbreak takes place after London’s real output grew by 5.4% in 2019 – according to ONS data - which is zz The UK’s real GVA annual growth rate for Q2 2020 was -21.7% - also the lowest rate of the historic series – which adds to an annual fall by 1.8%the in highest the first growth quarter rate since of2007 the despite year. last year’s Brexit-related uncertainty. • The UK’s real GVA annual growth rate for Q2 2020 was -21.7% - also the lowest zz London’s real GVA quarterly estimatesrate of the historicfor both series the – whichperiod adds Q1 to 1999 an annual to Q4 fall 2012by 1.8% and in thethe first two most recent quarters have been produced by GLA quarterEconomics. of the year. Estimates for the intervening period are outturn data from the ONS, • London’s real GVA quarterly estimates for both the period Q1 1999 to Q4 2012 which does not publish quarterlyand the estimates two most for recent London’s quarters realhave GVAbeen priorproduced to 2013.by GLA Economics. Estimates for the intervening period are outturn data from the ONS, which does Source: ONS and GLA Economics calculationsnot publish quarterly estimates for London’s real GVA prior to 2013. Latest release: August 2020, Next release: October 2020 Chart Annual percentage change in real GVA 10% 6% 2% -2% -6% -10% -14% -18% Annual percentage change -22% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

London UK

GLA Economics Source ONS and GLA Economics calculations 10

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File Worksheet 4 in Y:\0 Y Drive 2016\1 Macro\LET\Data\LET Charts.xlsx location Indicator 5: Employment rates in London and the UK

Title London’s employment growth rate was 3.5% in the year to Q2 2020 London’s Economy Today • Issue 216 • August 2020

London’s employment growth rate was 3.5% in the year to Q2 2020 zz Over 4.83 million London residents over 16 years old were in employment during the three-month period April- June 2020. zz The rate of employment growth in the capital was 3.5% in the year to Q2 2020, down from 4.4% in the year to the first Bulletsquarter of• 2020.Over 4 .83However, million LondonONS dataresidents shows over that 16 years 22.3% old wereof persons in employment in employment during in Q2 2020 were furloughed workers underthe thethree new-month Government’s period April-June Coronavirus 2020. Job Retention Scheme. • The rate of employment growth in the capital was 3.5% in the year to Q2 2020, zz By the second quarter ofdown the fromyear, 4. the4% UK’sin the employmentyear to the first grew quarter annually of 2020 at. However, a rate of ONS 0.3% data which is 1.1 percentage points below the same rateshow ins thatQ1 2020.22.3% of persons in employment in Q2 2020 were furloughed workers under the new Government’s Coronavirus Job Retention Scheme. Source: ONS Labour Force Survey• By the second quarter of the year, UK’s employment grew annually at a rate of Latest release: August 2020, Next0.3% release: which is September 1.1 percentage 2020 points below the same rate in Q1 2020.

Chart

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

4%

2%

0%

-2% Annual percentage change -4% Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- May May May May May May May May May May 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020

London UK Indicator 6: House prices in London and the UK Source ONS Labour Force Survey London house prices increased by 2.3% in annual terms in April Title LondonLatest houseAugust prices 2020 increased by 2.3% in annual terms in April zz In April 2020,release the average house price in London was £480,486 while for the UK it was £233,830. zz BulletsThe annual • growthNextIn April rateSeptember 20 in20 average, the 2020 av houseerage prices house in price London in Londonwas 2.3% was in April£480 2020,,486 while down forfrom the 5.1% UK in March 2020. releaseit was £233,830. zz Average house• The prices annual in the growth UK rose ratbye 2.6% in average in annual house terms prices last April, in London0.7 percentage was 2.3 points% in belowApril the same rate File Worksheet 5 in Y:\0 Y Drive 2016\1 Macro\LET\Data\LET Charts.xlsx in March. locatio2020, down from 5.1% in March 2020. Source: Land Registry• n A vanderage ONS house prices in the UK rose by 2.6% in annual terms last April, 0.7 Latest release: Augustpercentage 2020, Next pointsrelease: belowSeptember the 2020same rate in March.

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 11

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London’s Economy Today • Issue 216 • August 2020

Indicator 7: PMI Business Activity Index for London and the UK

In July, London’sTitle PMIIn Ju lybusiness, London’s PMIactivity business increased activity incre onased average on average across across businesses for for the first time since February the first time since February zz The BusinessBullets activity • PMIBusi nessindex activity at London PMI index private at London firms reachedprivate firms 55.5 reached in July 55.5 from in July46.2 fromin June. This is the first time a majority of firms46.2 are in seeingJune. This an isimprovement the first time ain majority business of firms activity are seeingsince anFebruary, improvement after a large fall by historic in business activity since February, after a fall large by historic standards in the standards in the index indexbetween between March March and and June. June. zz Similarly, the UK index rose from 47.7 in June to 57.0 in June. zz The Purchasing Managers’• Similarly, Index the (PMI) UK index survey rose shows from 47 the.7 in monthly June to business57.0 in June. trends at private sector firms. Index readings above 50 •suggest The Purchasing a month-on-month Managers’ Indexincrease (PMI) in activitysurvey showson average the monthly across businessfirms, while readings below 50 indicate a decrease.trends at private sector firms. Index readings above 50 suggest a month-on- month increase in activity on average across firms, while readings below 50 Source: IHS Markit indicate a decrease. Latest release: August 2020, Next release: September 2020 Chart PMI Business Activity Index (50 indicates no change on previous month) 70

60

change 50 -

40

30

20 Index, 50 = no 10

Indicator 8: PMI New BusinessJan-97 Jan-98 Jan-99 IndexJan-00 Jan-01 Jan-02 forJan-03 LondJan-04 Jan-05 Jan-06onJan-07 andJan-08 Jan-09 theJan-10 Jan-11 UKJan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 London UK

Title In July, PMI new business activity in London increased on average across Sourcebusiness IHSes Markit for the first time since February In July, PMI new business activity in London increased on average across businesses for the first timeBullets since Latest February August 2020 release• The PMI New Business Index in London went up in July (50.4) from 44.9 in zz The PMI New BusinessJune. ThisIndex not in Londononly shows went a up continuation to 50.4 in July of the from upward 44.9 in trend June. startedThis not in only May shows a continuationNext of thebutSeptember upwardalso July trend 2020 is thestarted first in monthMay but with also positive July is the expectations first month forwith new positive business expectations for new release business across theacross business the business community community since February. since February. The UK index was also above 50.0 in July (54.4), up from 47.0 in June. zz The UK Fileindex • was alsoWorksheet above 7 50.0 in Y: \in0 JulyY Drive (54.4), 2016 \up1 Macro from \47.0LET\ inData June.\LET Charts.xlsx zz An indexlocation reading• An above index 50.0 reading indicates above an increase 50.0 indicates in new orders an increase from the in previous new orders month. from the previous month. Source: IHS Markit

LatestChart release: August 2020, Next release: September 2020 PMI New Business Index (50 indicates no change on previous month) 70

60

change 50 -

40

30

20 Index, 50 = no 10 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 12

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London’s Economy Today • Issue 216 • August 2020

Indicator 9: PMI Employment Index for London and the UK

Title The PMI Employment Index in London remained stagnated and below 50 in July The PMI Employment Index in London remained stagnated and below 50 in July zz BulletsThe Employment • Th Indexe Employment for London I ndexdecreased for London slightly decreased to 35.7 in slightlyJuly from to 36.235.7 inin JuneJuly fromand remains 36.2 well below the neutral figure ofin 50.0.June Sinceand remainsFebruary well the belowmajority the of neutralfirms havefigure been of 50.0reporting. Since worsening February theemployment prospects. zz The index remainedmajority unchanged of firms for have the UKbeen at reporting39.6 in July. worsening employment prospects. zz The PMI Employment• The index Index rema showsined the unchanged net balance for of the private UK atsector 39.6 firms in July. of the monthly change in employment. Readings above• The50.0 PMIsuggests Employment an increase, Index whereas shows a thereading net belowbalance 50.0 of indicatesprivate sector a decrease firms inof employment from the previous month.the monthly change in employment. Readings above 50.0 suggests an increase, whereas a reading below 50.0 indicates a decrease in employment Source: IHS Markit from the previous month. Latest release: August 2020, Next release: September 2020 Chart PMI Employment Index (50 indicates no change on previous month) 65 60 55 change

- 50 45 40 35 30 25 Index, 50 = no 20

Indicator 10: RICS houseJan-97 Jan-98 pricesJan-99 Jan-00 forJan-01 Jan-02 LondonJan-03 Jan-04 Jan-05 andJan-06 Jan-07 EnglandJan-08 Jan-09 Jan-10 andJan-11 Jan-12 WalesJan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 London UK

Title House price changes in London improved but remained negative in the three Source IHS Markit House price changesmonths to in Ju Londonly improved but remained negative in the three months to July Latest August 2020 zzBulletsIn the three• months In the to threeJuly, themonths net balance to July of, the property net balance surveyors of reportingproperty surveyorsa rise in house reporting prices aremained releasenegative at -10,rise although in house up from price -54s remained in the three negative months at to -June.10, although up from -54 in the zz For England andthree Wales, months the RICS to houseJune. prices net balance index turned positive (12) in July after three months of Nextnegative figures.September 2020 release • For England and Wales, the RICS house prices net balance index turned positive zz The net balance(12) index in measures July after the three proportion months of of property negative surveyors figures. reporting a rise in prices minus those reporting a decline. File •Worksheet The net 9balance in Y:\0 index Y Drive measures 2016\1 the Macro proportion\LET\Data of property\LET Charts.xlsx surveyors reporting Source:location Royal Institutiona rise of Chartered in prices Surveyors minus those reporting a decline. Latest release: August 2020, Next release: September 2020 Chart RICS house prices net balance (change in prices during last three months, seasonally adjusted) 100 80 60 40 20 0 -20 -40 Net balance Net -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 13

Latest August 2020 release

Next September 2020 release

File Worksheet 10 in Y:\0 Y Drive 2016\1 Macro\LET\Data\LET Charts.xlsx location

London’s Economy Today • Issue 216 • August 2020

Indicator 11: RICS house price expectations for London and England and Wales

In July,Title net expectationsIn July, expectations of future of futurehouse h ouseprices price in sLondon in London were were less less negative negative than in in the the previous four months previous four months zz BulletsBetween May• andBetween July, surveyors May reportedand July net, sexpectationsurveyors reported of a further expectations contraction ofin Londona further house prices (-15). However, this indexcontraction has shown in a Londoncontinuous hous upwarde price trend (-15 since). However, March when this it index was -85. has shown a zz Sentiment in Englandcontinuous and Wales upward was positivetrend since (20) Main July,rch when up from this -13 index in June. was -85. zz The net balance• indexSentiment measures in England the proportion and Wales of propertywas positive surveyors (20) inreporting July, up a from rise in -1 prices3 in June minus. those reporting a decline.• The net balance index measures the proportion of property surveyors reporting Source: Royal Institutiona riseof Chartered in prices Surveyors minus those reporting a decline. Latest release: August 2020, Next release: September 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 Net -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

In August,SourceTitle consumerRICSIn RAugustesidential confidence, consumer Market in confidenceSurvey London remainedin London remainednegative negative and broadly and broadly unchanged since June unchanged since June Latest August 2020 zz releaseThe Bulletsconsumer confidence• The consumer index in confidence London wasindex at in-13 London in August, was atthe - 1same3 in August, figure sameas in figureJuly and very similar to its value in June as wellas (-14). in July The and August very similar level stillto its represents value in June one asof wellthe lowest(-14). Thelevels August in seven level years. zz NextIn August, theSeptember sentimentstill represent 2020 for the sUK one remained of the lowest at -27, level thes insame seven rate years. as in July. The UK has not shown a positive releaseindex score since• JanuaryIn August 2016., the sentiment for the UK remained at -27, same rate as in July. The zz The GfK index of consumerUK has not confidence shown a positive reflects index people’s score views since Januaryon their 2016.financial position and the general economy Fileover the pastWorksheet year• andThe in GfK11 the in nextindex Y:\ 012 ofY months. Driveconsumer 2016 A score \confidence1 Macro above\ zeroLETreflects \suggestsData people’s\LET positive Charts.xlsx views opinions; on their a score below zero location financial position and the general economy over the past year and in the next indicates negative sentiment.12 months. A score above zero suggests positive opinions; a score below zero Source: GfK NOP on behalfindicates of the European negative Commission sentiment. Latest release: August 2020, Next release: September 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 14

Latest August 2020 release

Next September 2020 release

File Worksheet 12 in Y:\0 Y Drive 2016\1 Macro\LET\Data\LET Charts.xlsx location

London’s Economy Today • Issue 216 • August 2020

ByAn Mike Hopeupdate, Economist on London’s trade

1 Overview This supplement provides a summary of the latest published data on international trade. For the first time, it is possible to produce an external trade balance for London. This shows that: zz London runs a trade surplus while the UK does not. zz the sectors on which London relies for its export-oriented success are also ones which play a critical role in providing imports. Due to limitations in the available published information GLA Economics has previously only published analyses of exports. Most recently, in 2017 it considered London’s exports1, and in February 2019 the LET supplement2 provided additional detail on the composition of exports.

2 Methodology The analysis in this supplement brings together data from a number of publications. Earlier this year the Office for National Statistics (ONS) published for the first time estimates of sub-national imports by sector for 20173. This complemented the release of sub-national exports statistics4 last year. This reports by the Standard Industrial Classification (SIC)5 which is typically used for analysis by industry. HM Revenue and Customs (HMRC) has published for some time regional goods trade statistics6. These adopt the Standard International Trade Classification (SITC)7, and so are not comparable with service trade statistics at a disaggregated level. The ONS has published tables which map exports8 and imports9 of goods by country, industry and commodity by year for the UK which addresses this limitation. It allows the conversion of trade estimates from SITC section to SIC sector. GLA Economics has converted HMRC trade data for London at SITC section level to SIC sector using these tables for 2017. It is then possible to combine goods and services trade data and produce trade balances for the whole of London and by sector. This supplement reports the results.

1 See An analysis of London’s exports | London City Hall 2 See London’s Economy Today - Issue 198 - February 2019 | London City Hall 3 See International imports of services to subnational areas of the UK - Office for National Statistics 4 See International exports of services from subnational areas of the UK - Office for National Statistics 5 See UK SIC 2007 - Office for National Statistics 6 See HM Revenue & Customs uktradeinfo - Regional Trade Statistics 7 See United Nations Statistics Division - Trade Statistics 8 See UK trade in goods by industry, country and commodity, exports - Office for National Statistics 9 See UK trade in goods by industry, country and commodity, imports - Office for National Statistics

GLA Economics 15 London’s Economy Today • Issue 216 • August 2020

3 London’s trade London is less import dependent than the UK. London runs a trade surplus with both the EU, and the world, while the UK as a whole is in deficit, (Figure A1). In 2017, London had a surplus of £7bn with the EU, and £30bn with the whole world, while the deficits for the UK were £66bn and £42bn respectively. Both London and the UK have trade surpluses with the world other than the EU of approaching £25bn. Around 70% of London’s trade is outside the EU (whether measured as exports or imports), while for the UK as a whole the share of non-EU trade is nearer two-thirds. London and the UK benefit from the service orientation of London’s economy. In contrast with all trade, both London and the UK are in deficit with the EU and the world in goods trade, but in surplus in services trade. London had goods trade deficits in 2017 with the EU and the world of -£14bn and -£26bn respectively, while its services trade surpluses were £21bn and £57bn. London accounts for less than 20% of the national goods trade deficit with both the EU and the world. In comparison, it makes up three-quarters of the services trade surplus with the EU, and over half of the corresponding surplus with the world. Figure A1: London and

100 the UK trade balances, £bn 2017

50 Source: ONS and HMRC

0

-50

-100

-150 EU world EU goods world goods EU services world services

London UK

Tables A1 and A2 provide some more detail for goods and services exports and imports. The value of London’s service exports is three times that of its goods exports, while goods and service imports are nearly of equal value. Indeed, London accounts for 42% of UK service exports, but only for 11% of goods exports and – overall – for around a quarter of all UK exports. There is a similar pattern for imports. In relation to GVA the share of exports is around a third for both London and the UK. While imports are equally important to the UK, London is less import dependent and the value of imports is 28% of GVA.

London UK London share Table A1: Exports, goods exports 36 328 11% goods and services, service exports 117 279 42% and output (GVA), all exports 153 607 25% values (£bn) and ratios, London and the GVA 435 1,847 24% UK, 2017 service/goods exports 322% 85% Source: ONS and HMRC goods exports/GVA 8% 18% service exports/GVA 27% 15% exports/GVA 35% 33%

GLA Economics 16 London’s Economy Today • Issue 216 • August 2020

London UK London share Table A2: Imports, goods imports 62 468 13% goods and services, service imports 60 181 33% and output (GVA), all imports 122 649 19% values (£bn) and ratios, London and the GVA 435 1,847 24% UK, 2017 service/goods imports 96% 39% Source: ONS and HMRC goods imports/GVA 14% 25% service imports/GVA 14% 10% imports/GVA 28% 35%

4 London’s trade by sector There is a similar pattern of trade balances by sector for London and the UK, (Figure A2). Both geographies are in deficit in the Wholesale and Retail sectors. London’s largest surpluses are in Finance (£24bn), Professional services (£13bn), and Information and communication (£11bn). These are amongst the sectors with the largest surpluses for the UK, and in each case London’s surplus is over half of that for the UK as a whole. The other sectors with large trade balances are Manufacturing, and Wholesale.

Figure A2: London and 60 UK trade balance by 40 key sector, £bn 2017 20 Source: ONS and HMRC, and 0 GLA Economics calculations -20 Note: Other services is -40 £ bn by SIC classification: -60 Public Administration and -80 Defence; Education; Health; Arts, Entertainment and -100 Recreation; and Other -120 services10 -140 Manufacturing Wholesale and Retail Information and Financial and Professional, motor trades (excluding communication insurance scientific and motor trades) activities technical activities

London UK

For both London and the UK these five sectors with the largest trade balances are also the sectors with the greatest trade, that is the sum of exports and imports. They account for around four-fifths of each of exports and imports for both geographies, (Figures A3 and A4). In 2017, London’s exports were £39bn in Finance, £26bn in Information and communication, and £21bn in Professional services. Imports in these sectors were £16bn, £9bn, and £15bn respectively, although imports were higher in Manufacturing at £21bn, and Wholesale at £28bn.

10 Service imports include travel-related trade. This is purchases overseas by UK citizens, and which cannot be attributed to an economic sector. This is included in total figures for imports, but has not been included in the analysis of this section.

GLA Economics 17 London’s Economy Today • Issue 216 • August 2020

Figure A3: London 250 and UK exports by key sector, £bn 2017 200 Source: ONS and HMRC, and GLA Economics calculations 150 Note: Other services is

£ bn by SIC classification: 100 Public Administration and Defence; Education; Health; 50 Arts, Entertainment and Recreation; and Other services

0 Manufacturing Wholesale and Retail (excluding Information and Financial and Professional, motor trades motor trades) communication insurance scientific and activities technical activities London UK

Figure A4: London and 250 UK imports by key sector, £bn 2017 200 Source: ONS and HMRC, and GLA Economics calculations 150 Note: Other services is

£ bn by SIC classification: 100 Public Administration and Defence; Education; Health; 50 Arts, Entertainment and Recreation; and Other services

0 Manufacturing Wholesale and Retail Information and Financial and Professional, motor trades (excluding communication insurance scientific and motor trades) activities technical activities

London UK Previous GLA Economics research11 has demonstrated that London specialises in export-oriented service sectors. This analysis reveals that imports by these sectors are also a critical part of London’s success.

5 Next steps ONS continues to develop regional trade statistics. GLA Economics will continue to monitor trends and new information on London’s trade. Other analysis on London’s economy can be found on our publications page.

11 See, for example, The Evidence Base for London’s Local Industrial Strategy–Final report | London City Hall

GLA Economics 18 London’s Economy Today • Issue 216 • August 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: Spring 2020 GLA Economics’ 36th London forecast is a scenario conditioned on both the Bank of England’s COVID-19 scenario published in May and the Office for Budget Responsibility’s (OBR) April COVID-19 scenario and includes all relevant national statistics published up to the end of May 2020. 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.