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| London set to bear brunt of post-Brexit vote downturn, say experts | London set to bear brunt of post-Brexit vote downturn, say experts |
| (about 1 hour later) | |
| London could bear the brunt of a Brexit vote downturn, as economic indicators in the weeks since the referendum have pointed to job cuts, falling house prices and a dip in business activity in the capital. | |
| London’s economy was relatively unaffected by the last downturn compared with other UK regions, but the early signs from the latest bout of turmoil suggest it may not get off so lightly, according to economists. That could have consequences for the government’s tax receipts and for overall growth, given the city’s contribution to the UK economy. | London’s economy was relatively unaffected by the last downturn compared with other UK regions, but the early signs from the latest bout of turmoil suggest it may not get off so lightly, according to economists. That could have consequences for the government’s tax receipts and for overall growth, given the city’s contribution to the UK economy. |
| One key concern about the impact on London of the vote to leave the EU stems from its dependence on financial services . London could lose its status as Europe’s financial capital if the UK leaves the single market and City banks are stripped of their lucrative EU “passports” that allow them to sell services to the rest of the union. | One key concern about the impact on London of the vote to leave the EU stems from its dependence on financial services . London could lose its status as Europe’s financial capital if the UK leaves the single market and City banks are stripped of their lucrative EU “passports” that allow them to sell services to the rest of the union. |
| “London was unscathed by the last recession, but its dependence on finance now is its Achilles’ heel,” said Samuel Tombs, the chief UK economist at the consultancy Pantheon Macroeconomics. | “London was unscathed by the last recession, but its dependence on finance now is its Achilles’ heel,” said Samuel Tombs, the chief UK economist at the consultancy Pantheon Macroeconomics. |
| He highlights a potential change of fortunes for London in a note to clients after surveys signalled firms in the capital had taken a hit from the referendum result. | He highlights a potential change of fortunes for London in a note to clients after surveys signalled firms in the capital had taken a hit from the referendum result. |
| London has been the UK’s growth star for the last two decades, outperforming the rest of the country, Tombs said. “Surveys since the referendum, however, indicate that the capital is at the sharp end of the post-referendum downturn.” | London has been the UK’s growth star for the last two decades, outperforming the rest of the country, Tombs said. “Surveys since the referendum, however, indicate that the capital is at the sharp end of the post-referendum downturn.” |
| London was the worst performer of 12 regions on one measure of business activity for the weeks following the 23 June vote. Firms in the capital cut jobs and suffered the sharpest drop in output since early 2009, when the UK was mired in recession, according to the Lloyds Bank regional purchasing managers’ index. | London was the worst performer of 12 regions on one measure of business activity for the weeks following the 23 June vote. Firms in the capital cut jobs and suffered the sharpest drop in output since early 2009, when the UK was mired in recession, according to the Lloyds Bank regional purchasing managers’ index. |
| Clients appeared reluctant to commit to new contracts, London firms said, and so order books deteriorated. “The capital was hit harder than any other UK region,” said Paul Evans, the regional director for London at Lloyds Bank commercial banking. | Clients appeared reluctant to commit to new contracts, London firms said, and so order books deteriorated. “The capital was hit harder than any other UK region,” said Paul Evans, the regional director for London at Lloyds Bank commercial banking. |
| Alexandra Jones, the chief executive of the Centre for Cities thinktank, said London’s mix of industries, high-skilled people and strong international connections put it in a good position to respond to any economic downturn. She too, however, said there were particular risks for the capital. | Alexandra Jones, the chief executive of the Centre for Cities thinktank, said London’s mix of industries, high-skilled people and strong international connections put it in a good position to respond to any economic downturn. She too, however, said there were particular risks for the capital. |
| “The European Union single market has been hugely important to London’s success in recent years, and lack of access to that market would have a big impact on the capital’s economy,” she said. | “The European Union single market has been hugely important to London’s success in recent years, and lack of access to that market would have a big impact on the capital’s economy,” she said. |
| “Slower economic growth in London would also affect public spending across the UK, given the national exchequer’s increasing reliance on London’s tax revenues,” she said, referring to a recent study by the thinktank that showed the capital generated almost as much tax as the next 37 largest cities combined. | “Slower economic growth in London would also affect public spending across the UK, given the national exchequer’s increasing reliance on London’s tax revenues,” she said, referring to a recent study by the thinktank that showed the capital generated almost as much tax as the next 37 largest cities combined. |
| Tombs said London’s medium-term fate would depend on how well the City’s interests are protected in exit negotiations.“We think London’s economy will underperform the rest of the UK for a couple of years, not just a few months,” he said. | Tombs said London’s medium-term fate would depend on how well the City’s interests are protected in exit negotiations.“We think London’s economy will underperform the rest of the UK for a couple of years, not just a few months,” he said. |
| In terms of property, shares in the London-focused estate agent Foxtons fallen, and it has said the referendum result would depress property sales in the capital for the rest of the year . | In terms of property, shares in the London-focused estate agent Foxtons fallen, and it has said the referendum result would depress property sales in the capital for the rest of the year . |
| A housing market report from the Royal Institution of Chartered Surveyors showed a slowdown across the market in July, but highlighted the fact that price falls were sharpest in London. London and East Anglia were the only areas where house prices were expected to fall over the coming year. | A housing market report from the Royal Institution of Chartered Surveyors showed a slowdown across the market in July, but highlighted the fact that price falls were sharpest in London. London and East Anglia were the only areas where house prices were expected to fall over the coming year. |
| Richard Donnell, the insight director at the property consultancy Hometrack, said modest price falls are likely in London’s higher value markets. “From analysis of the past 20 years we know that events which have shocked the UK economy, such as the dotcom bubble bursting in 2000 and the Iraq war in 2003, impacted housing turnover in London far more heavily than the rest of the UK,” he said. | Richard Donnell, the insight director at the property consultancy Hometrack, said modest price falls are likely in London’s higher value markets. “From analysis of the past 20 years we know that events which have shocked the UK economy, such as the dotcom bubble bursting in 2000 and the Iraq war in 2003, impacted housing turnover in London far more heavily than the rest of the UK,” he said. |
| “Even before the EU referendum, high prices, low yields, unaffordability, tax changes for landlords and poor value for money for overseas buyers were creating strong headwinds in the London housing market, which will intensify following the vote to leave.” | “Even before the EU referendum, high prices, low yields, unaffordability, tax changes for landlords and poor value for money for overseas buyers were creating strong headwinds in the London housing market, which will intensify following the vote to leave.” |
| Not everyone, however, expects London to face a bumpy post- Brexit vote period. Sebastian Burnside, NatWest’s senior economist, said the capital had enjoyed a 17% rise in jobs since 2008 - more than double the increase in the second-best performing region, the east of England. | Not everyone, however, expects London to face a bumpy post- Brexit vote period. Sebastian Burnside, NatWest’s senior economist, said the capital had enjoyed a 17% rise in jobs since 2008 - more than double the increase in the second-best performing region, the east of England. |
| “That performance isn’t based only on the financial sector. London’s strengths are much broader than that. Technology, professional services and the creative industries are all strong. The things that powered the economy in London won’t have gone away overnight, even if we don’t get a good deal out of negotiations,” he said. |