What London’s quarterly economic survey results say about Q4’s performance…

The current global economic climate – with on-going instability in China, the question of a Brexit hanging over Europe and the first interest rate hike in the US in a decade – was an interesting backdrop for the launch of London Chamber of Commerce and Industry’s (LCCI) Q4 2015 results of its London Quarterly Economic Survey with Capital 500. ComRes surveyed 511 London business leaders between 2 and 19 November last year.

The headlines of London’s Q4 performance:

  • Domestic demand is going up and continues to underpin the strong performance of London businesses;
  • There has been a 10% increase in employment;
  • Almost one in six businesses looked to hire in this quarter, a slight increase on Q3;
  • There was a significant increase in cashflow levels, with 24% of the Capital 500 companies reporting an increase;
  • Business confidence is still strong, with 33% expecting their companies’ prospects to improve over the next 12 months.

Commenting on these results at the LCCI event was Andrew Hawkins, Chairman, ComRes; Miles Gibson, Head of UK Research, CBRE Ltd; Vicky Pryce, Chief Economic Adviser, CEBR; and Colin Stanbridge, Chief Executive, London Chamber of Commerce and Industry.

Andrew Hawkins said the overall picture is that the economy is doing well. He highlighted that employment is being driven by larger firms, which are optimistic and whilst they are investing the most, they also have the greatest concerns about competition. He stressed that there are “different outlooks for different sized businesses“, and that in terms of sector, the construction industry is especially buoyant.

Vicky Pryce noted that London is not reflective of the economy as a whole. The slowdown in China is a big issue for the global economy and is, she believes, “worse than expected“, consequently slowing down world trade. In contrast, Miles Gibson felt that the current plunge in China’s stock markets was “just a wobble“, with the global economy likely to escape largely unaffected.

The US’ first interest rates hike since the recession “adds another layer of uncertainty“, said Pryce, meaning that any company with American debt will face added pressure to pay it off fast. With domestic demands keeping the UK economy afloat, she thinks these factors will “make it harder to sustain growth“. The referendum, she said, is already affecting investment, and so it is the consumer that is driving the economy through high levels of borrowing during this on-going period of low interest rates. When the Bank of England finally does put the interest rate up, those who have acquired large amounts of debt during the past nine years and who have become accustomed to static rates could find themselves out of their depth. Pryce speculates this hike, however, will not be before summer 2016.

Gibson highlighted some separate issues: the fact that there is not a great enough supply of office space, with increasing rent compounded with the need for companies to pay competitive salaries piling cost pressures on businesses. He stressed the need to take “a more long term view” to combat this issue, addressing concerns about London’s ability to keep up with the employment growth it is currently experiencing by providing better infrastructure and more houses. The national focus is therefore turning to the upcoming mayoral election, with the housing issue a very hot topic.

Addressing one of LCCI’s main lobbying points for greater fiscal devolution for London, Gibson believes all focus is currently on the North,  forecasting that there will be no progress on fiscal devolution for London in the next year, with the circa £43bn made in the city continuing to be spent elsewhere.

The exact date of the EU referendum is still uncertain, but, asserts Pryce, ‘it must be done within two years‘ in order to put a time limit on the huge amount of uncertainty it is creating. Whilst the question of EU membership remains unanswered for Britain, overseas businesses are no longer able to view the UK as a “safe haven“, with “the referendum already affecting investment“, according to Pryce.

In summary, a positive final quarter for London in 2015 in the face of global instability, but with a number of issues looming large, could the bubble be about to burst?