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London’s Economy Today editorial – April 2024

UK GDP saw further growth in February

This month saw the publication by the Office for National Statistics (ONS) of monthly GDP numbers for the UK for February 2024 (Figure 1). This data showed that the UK economy grew by 0.1% month on month in February. This follows monthly growth of 0.3% in January (revised up from a previously estimated 0.2%).

Figure 1:

Both the services and production sectors saw growth during February by 0.1% and 1.1% respectively, however the construction sector saw output fall by 1.1%. In relation to the fall in construction output, the ONS noted that anecdotal evidence “suggested negative effects of heavy rainfall delaying planned work and decreasing output in February 2024”.

Looking at the services sector in more detail (a sector of high importance to London’s economy) and over a longer time frame, output in the sector grew by 0.2% in the three months to February 2024. The ONS observed that “professional, scientific and technical activities was the largest positive contributor to the rise in services output in this three-month period, growing by 1.1% in the three months to February 2024. The next largest contributions came from admin and support service activities, which grew by 1.6% and transportation and storage, with output here rising by 2.2%”. However, “these growths were partially offset by a 1.4% fall in education, a 0.7% fall in human health and social work activities and a 0.7% fall in financial and insurance activities in the three months to February 2024”.

UK inflation continues to nudge lower

UK inflation continued to decline in March with UK CPI inflation standing at 3.2%, down from 3.4% in February 2024 (Figure 2), although it remains above the Bank of England’s central symmetrical target of Consumer Price Index (CPI) inflation of 2%.

Figure 2:

Individual components of inflation also saw falls. Goods inflation fell from 1.1% in February to 0.8% in March. Services inflation also eased slightly (from 6.1% in February to 6.0% in March) as did the core inflation rate (which excludes volatile energy, food, alcohol and tobacco), which slowed from 4.5% in February to 4.2% in March 2024.

Criticism of the Bank of England’s forecasting system

An independent report by Ben Bernanke, the former chair of the US Federal Reserve, was published this month. The report looked at the Bank of England’s forecasting system and found “serious deficiencies” that needed to be modernised and that under investment had led to a “complicated and unwieldy system”. Dr Bernanke recommended a number of changes to the Bank’s forecasting system, including placing less emphasis on the Bank’s “central forecast” as well as the publishing of economic scenarios. Speaking before the publication of the report Andrew Bailey, the governor of the Bank of England, said that Bernanke’s report was a “once in a generation” opportunity to upgrade its forecasting processes.

IMF maintains their outlook for the world economy

The International Monetary Fund (IMF) published their latest forecast for the world economy in their World Economic Outlook this April. This forecasts that the world economy would grow by 3.2% this year (a slight upgrade of 0.1pp on their January forecast), with growth of 3.2% in 2025 (unchanged on January). The IMF did note however that the forecast has a “pace of expansion [which] is low by historical standards, owing to both near-term factors, such as still-high borrowing costs and withdrawal of fiscal support, and longer-term effects from the COVID-19 pandemic and Russia’s invasion of Ukraine; weak growth in productivity; and increasing geoeconomic fragmentation”. While global inflation is expected to ease, “with advanced economies returning to their inflation targets sooner than emerging market and developing economies”.

Looking at individual economies in detail the IMF slightly downgraded UK growth forecasts both for this year and next. They now expect GDP to grow by 0.5% this year and 1.5% next year (downgrades of 0.1pp for both years on their January forecast). The Eurozone forecast was also downgraded by the IMF with growth of 0.8% in 2024 (a downgrade of 0.1pp) and growth of 1.5% in 2025 (a downgrade of 0.2pp). However, their forecasts for the US were upgraded, with US GDP expected to grow by 2.7% this year (an upgrade of 0.6pp on January) and 1.9% next year (an upgrade of 0.2pp).

Firms taking on new London office space

There were a couple of announcements related to firms and office space in central London. It has been reported that less than two years after it reduced its office space, Deloitte has taken an additional 70,000 sq. ft of space near its New Street Square headquarters. This increases its London office space by a fifth. While it was also announced that US hedge fund Citadel and Citadel Securities have agreed to take 250,000 sq. ft of space at 2 Finsbury Avenue, which is currently being built and is due for completion in 2027.

GLA Economics will continue to monitor London’s economy over the coming months in our analysis and publications, which can be found on our publications page and on the London Datastore.

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