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The Mayor of London The London Assembly

Macroeconomic scenarios for London’s recovery

We have published our latest macroeconomic scenarios based forecast for London in London’s Economic Outlook. We’ve also updated our macroeconomic scenarios for London’s economy, on which they are based.

The scenarios are part of work on the impact of the pandemic on London’s economy that we started after the beginning of the pandemic last year. The aim of this work is to help inform work in the GLA, including the recovery strategies in London. The two main variables examined in the scenarios are ‘real Gross Value Added’ (GVA) and employment as measured by ‘workforce jobs’ (WFJ), which are projected to the end of 2023.

We’ve developed three possible macroeconomic scenarios for London: 1) Fast economic recovery (an optimistic but plausible scenario), 2) Gradual return to economic growth (which is the GLA Economics reference scenario), and 3) Slow economic recovery (a more pessimistic but also plausible scenario). It should be noted that these scenarios are not meant to represent forecasts as they rely on a number of assumptions around the effectiveness/nature of the ongoing public health response especially in relation to COVID-19 variants, the effectiveness/impact of ongoing economic support measures or the international economic context, among other factors. Also the scenarios do not capture the full range of uncertainty about the future, which is may lie outside the range of the scenarios.

  • As you can see from the chart below, under the gradual return to economic growth scenario, London’s real GVA is expected to grow quite strongly by 5.4% this year as the easing of lockdown restrictions continue. The economic recovery will continue next year (6.9%) before slowing in 2023 (3.1%).
  • In terms of employment (workforce jobs), the impact of the recovery will take longer to be felt. Employment will continue to fall this year (-3.6%), with modest growth expected in 2022 (2.9%) before it picks up in 2023 (4.2%).
  • Looking at the alternative scenarios, the impact of the pandemic on output could see output grow by a relatively more modest 4.6% this year under the slow recovery scenario and growth can vary from 4.9% to 7.6% next year. In terms of jobs, all three scenarios predict a negative growth rate this year but with growth over the next two years although there are notable differences among the scenarios.
  • The chart below shows that real GVA is not expected to reach its pre-crisis levels until Q1 2022 in the reference scenario (Q3 2021 in the fast economic recovery scenario) while employment only reach pre-crisis levels in Q2 2023 in the gradual return to growth scenario.
  • Looking at London industries, the table below shows that the economic impact of the recovery is likely to be mixed.
  • Accommodation and food services; Arts, entertainment and recreation; Transport and storage; and Administrative and support services are expected see relatively sluggish output recoveries overall this year. On the other hand, Construction; Manufacturing; and Public administration and defence are expected to show a strong recovery. It should be noted that the relatively sluggish growth in output for Financial and insurance activities; and Real estate activities reflects their relative resilience during the earlier parts of the pandemic.
  • In terms of WFJ, sectors particularly heavily hit by the pandemic and dependent on government support such as Accommodation and food services activities; and Arts, entertainment and recreation are likely to take longer to recover than the London average.

The scenarios we’ve outlined above should be understood within a context of continuing unprecedented uncertainty. Overall, we continue to see many downside risks to the economy (e.g., around the recovery from the COVID-19 crisis, the international context and the potential for vaccine resistant variants). We will continue to track actual data in order to review the scenario outcomes in the future. Updates will be released on the London Datastore when they become available.