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London’s Economy Today editorial – March 2024

UK economy experienced growth in January

The Office for National Statistics (ONS) published monthly UK GDP data for January 2024 earlier this month. This data showed that the UK economy grew by 0.2% in January, which follows on from a monthly decline of 0.1% in December 2023 (Figure 1).

Figure 1:

Both the services sector and the construction sector saw growth in January, by 0.2% and 1.1% respectively. However, production output fell by 0.2% in that month. Looking at the services sector, a sector of high importance to London, the ONS noted that “the largest contribution to the 0.2% growth in services in January 2024 was wholesale and retail trade; repair of motor vehicles and motorcycles, which saw a 1.9% growth on the month”. And within that “the largest contribution came from retail trade, except of motor vehicles and motorcycles, which grew by 3.4%”. This was “partially offset by a monthly fall of 0.9% in professional, scientific and technical activities, where five of the eight industries saw falls on the month”, and a fall of 0.7% in information and communications.

Inflation falls in February

ONS data showed that Consumer Price Index (CPI) inflation fell to 3.4%, down from 4.0% in January 2024 (Figure 2). The ONS noted that the largest downward contributions to the monthly change in “CPI annual rates came from food, and restaurants and cafes, while the largest upward contributions came from housing and household services, and motor fuels”.

Figure 2:

Individual components of inflation also saw falls. So, goods inflation fell from 1.8% in January to 1.1% in February. Services inflation also eased (from 6.5% in January to 6.1% in February) as did the core inflation rate (which excludes volatile energy, food, alcohol and tobacco), which slowed from 5.1% in January to 4.8% in February.

The ONS also undertook their annual review of the basket of goods and services included in their measure of inflation. The basket, which has over 700 goods and services included in it, saw new additions including “air fryers, vinyl music, gluten free bread, and edible sunflower seeds”. While items such as “hand hygiene gel, hot rotisserie cooked chicken, and bakeware” were removed from the index. These changes are undertaken to reflect the changing spending habits of UK consumers.

The OBR publishes its latest forecast as the Chancellor delivers the March Budget

The Chancellor of the Exchequer, Jeremy Hunt, delivered the Budget on 6 March. Alongside this the Office for Budget Responsibility (OBR) published its latest Economic and fiscal outlook report. In this forecast, the OBR expects that UK GDP growth will increase from 0.1% in 2023 to 0.8% in 2024, before reaching around 2% in the mid-2020s. Inflation is forecast to fall to 2.2% in 2024 and 1.5% in 2025, before returning to the Bank of England’s inflation target of 2% by 2028/29. However, tax as a share of GDP is forecast to rise to 37.1% of GDP in 2028/29.

The Budget, which was delivered on the same day as the OBR published their new forecast, addressed several policy areas and proposes various measures, with additional funding to boost public-sector productivity, further cuts to National Insurance rates for employees and self-employed individuals, changes to the current tax treatment for non-domiciled individuals, measures to increase housing supply, and changes to the High Income Child Benefit Charge being key examples. Further, although London did not feature significantly in the Budget, there were several London-related announcements. These include additional investment in Barking Riverside and the Canary Wharf Scheme, extension to tax relief for Thames Freeport, and additional new homes in the Euston area.

International economic picture remains mixed

Internationally the economic situation remains mixed. So, in the US inflation picked up slightly in February with it rising to 3.2%, up from 3.1% in January. Airfares, car insurance and clothing were some of the items driving this increase. While US inflation has slowed since the Federal Reserve started raising interest rates in 2022, this persistence in US inflation may push back interest rate cuts in the US.

In the Eurozone, inflation dropped by less than the expected amount in February. Thus, it fell from 2.8% in January 2024 to 2.6% in February. This has dampened expectations of a rate cut in the Zone, with the Austrian National Bank Governor, Robert Holzmann, observing that “we will decide based on the data. If the data is not there, there will not be a decision — and for good reason”. With him adding “central banks got attacked over the failure to accurately project high inflation and they are now trying to avoid making the same mistake”.

Japan avoided entering a technical recession at the end of 2023 as revised data for the last three months of the year showed that GDP increased by 0.4% compared to the same period in 2022. The Bank of Japan, Japan’s central bank, also raised interest rates this month to between 0%-0.1% from a negative rate of -0.1% which was designed to stimulate the economy and had held since 2016. The Bank also abandoned its policy of yield curve control, where it bought Japanese government bonds to control interest rates. The rate rise came against a backdrop of rising wages while inflation has remained steady at a target of 2%.

The British Museum was the most visited attraction in 2023

Data from the Association of Leading Visitor Attractions (ALVA) showed that the British Museum was the most visited UK visitor attraction in 2023. The data showed that there were 5,820,860 visitors to the museum last year, an increase of 42% on 2022. This was the first time since 2019 that the museum had topped the list of attractions, with it standing in third place in 2022. The second most visited UK attraction in 2023 was the Natural History Museum with 5,688,786 visitors, an increase of 22% on 2022. Of the top ten most visited attractions, nine were in London. However, the ALVA did note that visitor numbers to UK attractions were still below pre-pandemic levels.

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