London economy leading UK growth

New forecasts from the Centre for Economics and Business Research (Cebr) for the London economy show the capital returning to rapid growth sooner than previously expected, as business conditions continue to improve.

The London economy is now expected to expand in real terms by two percent over 2013 as a whole and by 3.8 percent in 2014. This is an upwardly revised forecast from 1.3 percent and 2.1 percent respectively in Cebr’s previous July estimates, thanks to a sharp and sustained increase in both business and consumer confidence in the capital, suggesting economic recovery is here sooner than previously anticipated. These growth estimates mean that the London economy is expected to have regained its pre financial crisis (2008) peak in 2013 in real terms and compare to UK-wide forecasts of 1.6 percent and 2.7 percent for 2013 and 2014 respectively – London is outpacing the UK as a whole.

In fact, Cebr’s forecasts for London and the UK as a whole show that London is contributing almost a third of all the growth in the UK. That is, of the 2.7 percent UK growth expected for 2014, 0.8 percentage points are expected to come from London. This comes despite London comprising only roughly one fifth of economic output and just 13 percent of employment – the capital is punching above its weight.

The economic growth outlook for the forecast years 2015 to 2018 is also bright, with average annual expansion of 2.6 percent. Downward pressure on the growth rate is expected during these years from government spending cuts, as the public sector deficit will need to be trimmed. Even so, Cebr expects output in London in 2018 to be 16.5 percent ahead of the previous 2008 peak.

Economic growth in London is expected to be chiefly fuelled by the business service and technology sectors. Professional and technical services (such as law, accountancy or architecture) are expected to see faster growth in 2014 and beyond, while even the financial services sector is projected to stop acting as a drag on growth in 2013 and start contributing positively to London’s output from 2014.

Cebr has also upwardly revised its forecasts for London employment growth. Residency-based employment is projected to increase by 2.8 percent over 2013 as a whole, following a strong increase over the year to date. Employment growth of 1.4 percent is expected for 2014. These are up from 1.5 percent and 1.1 percent in Cebr’s previous forecast. Average annual employment growth of 0.9 percent is expected between 2015 and 2018.

Cebr now expects unemployment in London to fall to 7.2 percent by 2018, down from an estimated 8.5 percent over 2013 as a whole and broadly in line with the 7.1 percent seen in 2008, before the recession began.