London’s Economy Today editorial – October 2024
UK economy grows in September
After seeing two months of zero growth in both June and July, data from the Office for National Statistics (ONS), published this month, showed that the economy grew by 0.2% in August (Figure 1).
Figure 1:
The ONS estimates that all sectors of the UK economy grew in August. Output in the Services sector grew by 0.1% in August following growth of 1% in July. Output in the Production sector increased by 0.5% after falling by 0.7% in July and output in Construction grew by 0.4% in August following a decline of 0.4% in July. Real GDP is estimated to have grown by 0.2% in the three months to August, compared to the three months to May 2024.
UK inflation falls below target
In September UK inflation saw a surprising decline, with Consumer Price Index (CPI) inflation falling to 1.7% on an annual basis, down from 2.2% in August (Figure 2), according to new data from the ONS. This marks the first time inflation has dropped below the Bank of England’s (BoE) central symmetrical target of 2% CPI inflation ±1% since April 2021. The surprising fall, which was driven by lower airfares and petrol prices, has increased market expectations of further rate cuts by the BoE, providing additional room for policy adjustments ahead of its November and December meetings.
Core inflation, which excludes volatile components like food and energy, also eased to 3.2%, down from 3.6% in August. The fall in services inflation, a key measure of underlying price pressures for the BoE, was particularly notable, with prices in this sector rising by only 4.9%, a sharp drop from 5.6% the previous month. Lower airfares were a significant factor, along with a 10.4% decline in fuel prices compared to the same period last year. However, food and non-alcoholic drink prices continued to rise, with sharp increases in costs for milk, cheese, eggs, and fruit.
Despite the easing of inflationary pressures, concerns remain about the broader economic outlook. UK wage growth has slowed, with wages rising by 4.9% in the three months to August, down from 5.1% in the previous period. While this suggests that domestic price pressures may be softening, inflation is expected to tick up again later in the year as energy prices stabilize.
Figure 2:
The new government delivers its first Budget
The Chancellor of the Exchequer, Rachel Reeves, delivered her first Budget on 30 October 2024. This was delivered against a background of slow economic growth, with the latest forecast from the Office for Budget Responsibility (OBR), also published on the same day, forecasting economic growth of just over 1% for this year, rising to 2% in 2025 and then moderating to around 1.5% annually. Inflation is expected to peak at 2.6% in 2025, with a gradual return to 2% by 2029, while public sector debt is forecast to stabilize at approximately 97.1% of GDP by the end of the forecast period in 2029-30.
The Chancellor announced several tax changes that she stated would raise £40 billion in revenue. These included:
- National Insurance Contributions (NICs): Employer NICs will increase from 13.8% to 15% starting in April 2025, with a reduction in the secondary threshold from £9,100 to £5,000. The Employment Allowance will rise from £5,000 to £10,500, exempting 865,000 employers from paying NICs next year.
- Inheritance Tax: The inheritance tax threshold will be frozen at £325,000 until 2030. However, from April 2027, inherited pensions will be included within inheritance tax, generating additional revenue.
- Capital Gains Tax: Rates will increase from 10% to 18%, with the higher rate rising from 20% to 24%.
The Chancellor stated that these changes are essential to address spending needs, including funding allocations to meet financial commitments and close a £22 billion gap in public finances. This tax revenue will be part of a broader fiscal approach that includes increased borrowing, raising public sector net borrowing by an average of £32 billion annually over the next five years.
Of announcements of particular interest to London, the Budget included:
- HS2: Commitment to begin tunnelling work toward Euston.
- Devolution: Greater Manchester and the West Midlands will be the first mayoral authorities to receive integrated funding settlements from next year, marking a shift towards increased devolution and local authority funding. There was a commitment to explore “how an integrated settlement could apply to the Greater London Authority from 2026-27”.
- Transport for London (TfL) funding: £485 million for TfL’s capital renewals programme in 2025-26.
- Enhanced Business Rates Retention: Extension of the GLA’s enhanced business rates retention arrangements at 67% for 2025-26.
- Building Safety Remediation: £1 billion in UK-wide funding confirmed for building safety remediation next year, addressing urgent safety improvements.
GLA Economics will examine the Budget in further detail and its impact from a London perspective in next month’s supplement to London’s Economy Today.
European Central Bank cuts interest rates
In the Eurozone the European Central Bank (ECB) cut its key interest rate by a quarter-point to 3.25% (Figure 3) in October, as it responded to a notable easing in the Zone’s rate of inflation and growing concerns about sluggish economic growth. This was the second consecutive rate cut following a similar quarter-point reduction in September, underscoring the ECB’s shift toward a more accommodative monetary policy.
Figure 3: ECB Deposit Facility Rate (%) from January 2022 to October 2024

Source: ECB, Eurostat
During a press conference ECB President, Christine Lagarde, emphasized that “the disinflationary process is well on track”, pointing to the latest economic data, which showed inflation in the Eurozone falling below the ECB’s 2% target for the first time in over three years. The final inflation reading for September came in at 1.7%, a sharp decline from the previous month’s 2.2%, further solidifying the case for policy easing. She also highlighted that while the decision to cut rates was unanimous, the ECB remains cautious, and that it is not pre-committed to further cuts, but will remain data-driven. The ECB further noted that although inflation is expected to stabilize near the 2% target by late 2025, the recent downside surprises in economic activity and inflation give them more flexibility in managing monetary policy.
The latest ECB rate cut comes amid increasing signs of economic weakness in the Eurozone, with Germany, the region’s largest economy, showing significant signs of slowing. Nevertheless, Christine Lagarde rejected the idea that the Eurozone is headed for a recession, describing the outlook as more of a soft landing rather than a hard stop. Also, despite the weaker inflation data, she stressed that inflationary pressures could return later in the year, driven by energy price stabilization and a potential uptick in demand. Looking ahead, the ECB signalled that it would continue closely monitoring economic developments. The next meeting on 12th December is likely to provide further insights into the Bank’s outlook for 2025 and beyond.
London has higher over 50s poverty rates than the rest of the country
A report from Age UK London published this month has shown that poverty rates among Londoners aged 50 and above are significantly higher than those in the rest of England. The report showed that 24% of older Londoners live in poverty, compared to 19% nationwide. This disparity suggests that if London matched the national average, around 125,000 fewer older residents would experience poverty. High housing costs and fixed incomes contribute to this trend, with structural issues in London’s housing market, including the prevalence of high rents and limited affordable housing, intensifying financial strain for older residents.
Housing tenure was found to be a critical factor in these poverty rates, as older Londoners renting in the social housing sector face the greatest challenges: approximately 46% of them live in poverty. Private renters were found to be similarly affected, with 28% of London’s over-50s in poverty, while home ownership offers some financial stability to those who own their properties outright. Rising rent prices, coupled with relatively low pension incomes, force many older Londoners to prioritize housing costs over other essential needs, reducing their quality of life.
The report found that in 2022 fuel poverty further exacerbated the issue, particularly as rising energy costs placed an additional burden on older, fixed-income households. That year, the state pension amounted to £9,627 per year, while annual energy bills ranged from approximately £1,750 for purpose-built flats to £3,300 for detached houses. This means that single pensioners could be spending between 18% and 34% of their income on energy alone, compared to just 9% for an average British household under 50 and actively employed. According to the Department for Energy and Climate Change (DECC), almost 58% of those in fuel poverty are either single individuals or couples over 60, with households of couples over 60 experiencing an average fuel poverty gap of £262. Among Londoners aged 50 to 59, one in five (20%) faces fuel poverty, compared to 15% for this age group in the rest of England. These figures underscore the disproportionate impact of energy costs on London’s older residents.
The Age UK London report calls for targeted policy interventions, including campaigns to increase Pension Credit uptake and improvements in social housing energy efficiency. Local authorities and the Mayor are encouraged to support initiatives that help older residents access necessary benefits and enhance outreach to isolated older adults who may not be aware of these services. The report argues that bridging this poverty gap would not only address an urgent financial need but also significantly improve the living conditions of one of London’s most vulnerable demographics.
Consultation on the formation of a new “airspace design service”
Elsewhere, the Department for Transport and the Civil Aviation Authority have announced a consultation on the formation of a new “airspace design service” which will redraw how planes fly, in, out and around the UK. This review will start with the airspace in London and south of England. Redrawn routes could free up quicker journey times and reduce pollution from aircraft, but it could also lead to new communities experiencing noise pollution from flights.
GLA Economics will continue to monitor all these and other aspects of 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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