London’s Economy TodayIssue 214 | June 2020 Outlook for London’s economy remains gloomy as lockdown is eased By Gordon Douglass, Supervisory Economist, and Eduardo Orellana, Economist Also in this issue Inflation falls again in May as The easing of the COVID-19 lockdown which public debt rises above 100% of GDP for the first time in 60 began in May continued into June. However, this years ......................................... 3 was overshadowed by data from the Office for London sees large rise in National Statistics (ONS) showing the biggest employment-related benefit ever monthly drop in UK GDP which fell by 20.4% claims ........................................ 3 in the month of April after already falling by 5.8% Londoners less able to economise in March (Figure 1). than elsewhere in the UK during the lockdown ............................ 4 Monthly data can be very volatile especially in the current environment, however data for the three months to April (which included the non- Nearly a third of the UK workforce lockdown periods of February and the first half of March) showed GDP was furloughed at the end of declining by 10.4%. In economics a fall in GDP of more than 10% in May ........................................... 5 a given year or falling GDP for 2 or more years is usually referred to London airports see a big fall as a depression. Of the sectors of the economy Accommodation and in visitor numbers due to the food services saw the largest decline in output in those months with it lockdown ................................... 6 falling by 40.9%, while Other services fell by 20.5%, and Construction, Brexit transition deadline looms 7 Education, and Transport and storage all saw output fall by more than Forecasts for the economy remain 18%. However, showing the differential impact of the lockdown on poor .......................................... 7 sectors, Financial and insurance services and Real estate saw output fall by only 1.5% and 0.4% respectively and Public administration and Economic indicators .................. 9 defence saw output growing by 0.2%. Also the PMI for May, although GLA’s First Adult Education still showing a decline, did pick up a touch on their very low levels in Budget Data Publication ........ 15 the previous month. Our latest publications ............ 20 London’s Economy Today • Issue 214 • June 2020 Figure 1: UK monthly 110.0 GDP, Monthly index, 105.0 January 2007 until April 2020 100.0 Source: ONS 95.0 90.0 85.0 80.0 75.0 70.0 2019 Jul 2014 Jul 2009 Jul 2015 Oct 2018 Apr 2010 Oct 2013 Apr 2008 Apr 2017 Jan 2017 Jun 2012 Jan 2012 Jun 2007 Jan 2007 Jun 2016 Mar 2011 Mar 2019 Feb 2014 Feb 2009 Feb 2017 Nov 2019 Dec 2012 Nov 2014 Dec 2007 Nov 2009 Dec 2016 Aug 2018 Sep 2011 Aug 2013 Sep 2008 Sep 2015 May 2010 May As mentioned, easing of the lockdown has continued. For instance, non-essential shops were allowed to reopen in England on 15 June which should see some recovery in GDP over the coming months although not to pre-crisis levels for some time yet. Also the Government announced the creation in England of “support bubbles” where a single person or single person plus child household can meet another household of any size to provide support to each other. However, plans for all primary school children in England to have at least one month’s worth of further teaching before the start of the school holidays were shelved by the Government in June due to problems ensuring social distancing. Despite this easing of the lockdown, data continues to show that activity across a number of sectors of London’s economy remains reduced although with some upticks compared to the height of the lockdown for those parts of the economy for which restrictions have been eased (Figure 2). Further easing is planned in July such as the reopening of pubs in England with social distancing in place. Retail and recreational activity in London Figure 2: Retail and rocery Retail & Restaurant bookings Social venues recreation activity in pharmacy recreation London Source: Grocery and retail data from Google Mobility, 100 social venues from Purple rocery pharmacy public Wifi and restaurant bookings from Open Table. Lockdown Note: Vertical red lines show Social Distancing 50 returnSome workers changes in social distancing Scool pub etc cloe Scool Retail & Shops open, household bubbles rule and vertical grey bands Schools open, small groups outside recreation show weekends and public People with symptoms should self−isolate People holidays Social venues 0 Restaurant bookings 02 Mar 16 Mar 30 Mar 13 Apr 27 Apr 11 May 25 May 08 Jun 22 Jun Grocery and retail metrics from Google Mobility, social venues (bars, event spaces etc) from Purple public Wifi and restaurant bookings from OpenTable Vertical red lines show changes in social distancing rules Vertical grey bands show weekends and public holidays GLA Economics 2 London’s Economy Today • Issue 214 • June 2020 Inflation falls again in May as public debt rises above 100% of GDP for the first time in 60 years Other data published in June also shows the impact of the pandemic on the national economy such as shown by the steep fall in inflation over the past few months. This has seen the Consumer Price Index (CPI) measure of inflation fall from 1.5% in March to 0.8% in April and 0.5% in May 2020 . The ONS noted that falling prices for “motor fuels and a variety of recreational and cultural goods” caused the largest downward contributions to inflation but were partly offset by food and non-alcoholic drinks price rises. ONS data published in June also showed the impact COVID-19 and the policy responses to it are having on public finances. Public sector net debt, excluding public sector banks, was, at the end of May 2020, 100.9% of GDP, which was the first time debt has been above 100% of GDP since March 1963. Government borrowing in May 2020 was estimated to have been £55.2 billion, about nine times bigger than in May 2019, and the highest borrowing in any month since records began in 1993. In response to the poor economic situation the Bank of England decided to extend by a further £100 billion its policy of quantitative easing, although it has slowed the rate of assets purchases under the scheme expecting to now complete it by the end of the year. The Bank further noted “that the outlook for the UK and global economies is unusually uncertain” but that “emerging evidence suggests that the fall in global and UK GDP in 2020 Q2 will be less severe than set out” in their May economic scenario for the UK. Internationally, central banks and governments have also been taking action to support their economies. The European Central Bank increased its quantitative easing programme by €600 billion in June, with the programme set to run to June 2021. While in the US, despite a surprise boost in hiring by 2.5 million jobs in May giving an unemployment rate of 13.3%, the chair of the Federal Reserve, Jerome Powell, has warned that the road to recovery is “going to take some time”. London sees large rise in employment-related benefit claims Employment data from the ONS published in June allows us to see the first impact of the lockdown on London’s and the UK’s labour markets. Experimental Claimant Count data which covers claims for Jobseeker’s allowance and those claimants of Universal Credit (UC) who are “searching for work” showed that the number of claims in the capital has gone up by 167% (around 310,000) since March, which was higher than the UK increase (126%). London alone accounted for a fifth of the increase in UK claims over this period. Looking at this data in more detail shows that workers aged 25-29 saw the largest year on year increase in claims (+238%) in London but almost all age groups in the capital experienced a larger increase than their UK counterparts (Figure 3). At a more local level, Newham is the borough that experienced the largest year on year change in claims in the capital (+16,505), and West Ham is the parliamentary constituency that saw the largest increase in claims on the same period last year, followed by Tottenham and East Ham. GLA Economics 3 London’s Economy Today • Issue 214 • June 2020 Figure 3: Claimant 300% count change, by age groups, May 2019 – 250% May 2020, UK and London 200% Source: ONS Labour Market Statistics. Note 150% that an increasing number of people became eligible 100% for unemployment-related benefit support, although still employed. Consequently, 50% changes in the Claimant Count will not be due wholly 0% to changes in the number of 16+ 16-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 people who are unemployed UK London There was also a large fall in the number of hours worked at the UK level. Between February to April 2019 and February to April 2020, total actual weekly hours worked in the UK decreased by 94.2 million, or 8.9%, to 959.9 million hours. This was the largest fall on record since the beginning of the series in 1992. Accommodation & Food Services saw the biggest fall in average actual hours; down 6.9 hours to 21.2 hours per week. While, experimental monthly estimates of paid employees and their pay using HMRC PAYE data shows that the number of payroll employees in the UK fell by 612,000 between March 2020 and May 2020 (-449,000 between March and April; -163,000 between April and May).