Signs of improvement in London’s economy - but recovery is patchy

In the July edition of the ‘London’s Economy Today’ GLA Economics report that UK growth picked up strength in Q2 2010. However, despite the stronger than expected pick up in Q2 GDP is still 4.6 per cent below its pre-recession peak.

Output growth in the construction sector saw a bounce back in Q2 2010 at an estimated 6.6 per cent. Growth in the service sector (at 0.9 per cent) and manufacturing (at 1.6 per cent) also picked up in Q2 2010. Within services, the financial and business services sector grew particularly strongly (1.3 per cent).

The latest CBI/KPMG London business survey found that, of those businesses surveyed, 53 per cent of respondents were optimistic about their business’ future prospects – up six percentage points on six months earlier. Fifty-eight per cent of businesses were planning for expansion over the next year with nearly a third planning to expand in London. However, the cost of doing business in London and the quality and reliability of the capital’s transport network remain concerns.

The robust UK growth is unlikely to continue over the next 12 months - a patchy recovery seems the most likely outcome. Graeme Leach, Chief Economist at the Institute of Directors believes that “the latest quarterly GDP figures were good news, but we think they’re likely to be as good as it gets. We do not think this rate of growth can be maintained”. The fact that some of the strength of Q2 2010 growth came as a result of a bounce back from the weak Q1 (the impact of VAT being raised and bad weather conditions) means that a slowdown in Q3 should be expected. The overall picture for London’s economy remains one of modest recovery.

Businesses report lower employment in June

Growth in the economy in Q2 has not necessarily led to a corresponding growth in employment. The level of employment in London firms decreased in June 2010.

Trevor Bottomley
Employment & Labour Market Adviser
Central London Connexions
August 2010