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GLA Economics forecasts slow growth for London in the coming year

GLA Economics has just published its latest economic forecasts
for London. This uses our bespoke and newly updated forecasting model to
estimate London’s economic output (as measured by gross value added or GVA),
workforce jobs[1],
household income and household spending up to 2021.

At the headline level, we forecast:

  • London’s economy is expected to have grown by 1.8%
    in 2019 in real terms (i.e. after accounting for inflation). This rate of real
    GVA growth is then expected to slow in 2020 to 1.1%, before picking up to 1.8%
    in 2021.
  • The number of jobs is expected to have increased
    1.5% in 2019. We then expect the rate of employment growth to slow markedly to
    0.1% in 2020 before rebounding back to 0.7% in 2021.
  • Household income and spending are expected to
    also grow at a modest rate over the three-year forecast period after accounting
    for inflation. That said, the rates of growth are expected to be below
    historical averages.

Putting these forecasts in the context of historic growth
rates (see Figures 1 and 2), we can see that the forecasted growth of output
and employment are more subdued than previous years. This can be partly linked
to the continued uncertainty caused by the UK’s decision to leave the European
Union (EU) even though the forecasts assume a smooth transition period. For
example, business surveys like the Purchasing Managers’ Index (PMI) show a downward
trend in the confidence of managers on the economic situation since the second half
of 2017 and was particularly weak towards the end of 2019. These business
surveys suggest that the uncertainty caused by Brexit might have dampened business
activity, business investment and employment – among other business decisions –
in recent years.

Figure 1: Forecasts of London’s GVA, constant prices

 Source: GLA Economics

Figure 2: Forecasts of London’s workforce jobs

Source: GLA Economics

We can also compare our forecasts for London with those from
independent and external organisations[2].
Our forecasts are generally within the range of independent forecasters for the
three-year forecast period although perhaps on the lower side (Figure 1 and 2).
Generally, the external forecast shows a similar underlying trend of subdued
GVA growth and relatively slow jobs growth.

Our forecasts are also available by broad industry group. We
expect some of the fastest overall rates of output growth to be in the Financial
and business services industry between 2019 and 2021 (Figure 3). Other sectors
of London’s economy are also expected to experience growth but at a slower rate
such as Other (public & private) services (Figure 4) or Construction (Figure
5). On the contrary, the Manufacturing sector (Figure 6) is expected to see declines
in both 2020 and 2021 according to our forecasts.

Figure 3: Financial and business services real output and employment growth (% annual changes)

Source: GLA Economics

Figure 4: Other (public & private) services real output and employment growth (% annual changes)

Source: GLA Economics

Figure 5: Construction (% annual changes)

Source: GLA Economics

Figure 6: Manufacturing real output and employment growth (% annual changes)

Source: GLA Economics

There are risks to our forecasts, however. Several of these
risks relate to the ongoing uncertainty around the economic impact of the
Brexit process. For instance, what the future trading relationship between the
UK and EU will look like and whether there is any long-term reputational damage
to the UK. Unfortunately, it is not yet possible to fully understand these
Brexit impacts, though things should hopefully become clearer as 2020
progresses. Other risks include the increasing protectionist measures that a
number of countries and in particular the US are undertaking. So there is
evidence that the US/China ‘Trade War’ is already having a negative impact on
global trade and, consequently, reducing global growth prospects. The permanent
subdued productivity growth both in London and the UK and the increasing pressure
on central government spending are also some concerns to consider in the short
to medium term. Altogether, these risks mean that there is some degree of
uncertainty over our economic forecasts for London. The actual figures may be
better or worse than those presented here. They nonetheless represent our best
estimates based on currently available information. Given this, we constantly
monitor and report on new information and how they can affect our forecasts in
our monthly economic overview – London’s Economy Today and in our working
papers and current issues notes. These can be downloaded from our publications

For more information about our economic forecasts, please see London’s Economic Outlook: Autumn 2019. Our next set of forecasts for London’s economy will be in Q2 2020.

This is separate from our labour
market projections
which estimates the number of jobs by sector and borough
to 2041.

This includes Cambridge Econometrics, Cebr, Experian Economics and Oxford