New Mayor Faces Economic Headache As Growth In Central London's Economy Slows Significantly

London’s Global Powerhouse position under threat unless housing, infrastructure and school shortages tackled

11.04.2016

David Shirt, Press Officer | 0161 838 3094

A new report has revealed that the pace of economic growth within the heart of London fell significantly in the final quarter of 2015 - providing a significant headache for the incoming Mayor who is already tasked with resolving the housing shortage and dealing with any potential implications of a ‘Brexit’.

The UK Powerhouse study by national law firm Irwin Mitchell and the Centre for Business and Economic Research (Cebr), provides an estimate of GVA* and job creation within 38 of the UK’s largest cities 12 months ahead of the Government’s official figures.

It has revealed that annual growth across Inner London in the final three months of last year fell to 1.9pc compared to 2.6pc in Q3.

The rate at which new jobs were created slipped back from over 5.8pc to 3.5pc in the same period.

London as a whole still performed relatively well due to a strong performance of Outer London, however the report predicts that its overall annual GVA growth, which measures expansion in the value of goods and services produced, will fall steadily in the next three years to 2.3pc. In 2014, the figure stood at 4.9pc.

In line with its projections for the UK as a whole, Cebr has also lowered its forecasts for London’s GVA in 2016. Three months ago, it was expected to reach £370.9bn by the end of this year, but this has been revised downwards by more than £2bn to £368.7bn.

Expert Opinion
“The last quarter of 2015 was undoubtedly a tough one for the city of London and interestingly growth was slower than it was in Birmingham and Manchester during the same period. Depressed investment, lower levels of confidence and the uncertainty caused by the EU referendum, are clearly taking their toll.”
Niall Baker, Chairman of IM Asset Management & Partner

Irwin Mitchell’s UK Powerhouse report highlights the impact that substantial turbulence across the financial services sector has had on Inner London’s finance and business services sector.

It however points to the continued rise in the ‘Flat-White Economy’, a term coined by Cebr after the drink synonymous with the young workforce, to describe a range of businesses within media, internet, ecommerce and creative industries.

While comparatively still only employing around 60pc of the number of workers employed in London’s financial services sector in 2014, the number of people in this growing area of the economy rose by 40pc between 2009 and 2014. This compares with a 24.2pc rise in financial services employment.

The report says the new mayor must ensure growth opportunities within this sector are not lost and highlights the need to continue making the city a sustainable and attractive place for young people.

Topping the list of priorities is dealing with an estimated 500,000 shortfall in new housing through to 2036 along with the multi-billion pound cost of new infrastructure, including Crossrail 2, the Bakerloo extension, new river crossings in East London and a variety of new road tunnels.

It also highlights London’s unique demographic profile which is putting particular pressure on the school system, particularly at primary level.

It says that around 40pc of the national shortage of school places are in London and with the number of school age residents in the capital expected to rise by around 17pc by 2036, the new Mayor is likely to need to make moves to address the current challenges facing the schooling system across London

Although the report says that London’s rising population provides the new Mayor with some of the most important challenges, the upcoming UK referendum on EU membership could notably change the environment in which he looks to address these issues.

Commenting on the research, Andrew Watson, Partner and Head of Business Legal Services at Irwin Mitchell in London, said: “The new Mayor will still be taking over one of the fastest growing cities in the UK, but faced with political and business uncertainty, he clearly has a job on his hands for ensuring London retains its position as a global powerhouse.”

Scott Corfe, Director at Cebr, said: “The EU is London’s biggest trading partner and access to the Single Market is a core reason for many of world’s largest companies choosing London as the city to base their European or global headquarters.

“In the event of a ‘no’ vote on June 23rd, the new Mayor will be challenged with making sure the needs of the London economy are taken into account as the UK negotiates its exit with other EU members. Given the importance of financial services to London’s economy, negotiations with regards to passporting rights, which allow a UK headquartered bank access to the Single Market, will be important in order to help maintain London’s position as the most attractive global financial centre.”   

Irwin Mitchell produced its first UK Powerhouse report in October 2015. The report predicted a growing economic gap between the South East and the North of England and made nine policy recommendations along with a call for the government to radically rethink how it looks to rebalance the UK’s economy.

The follow on quarterly reports provide an estimate of GVA and job creation within 38 UK cities 12 months ahead of the Government’s official figures.

To take part in Irwin Mitchell’s UK Powerhouse quiz, click here

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