13th November 2012
Could East London's hipsters point the way to the capital's economic recovery led by the creative industries? New forecasts from economic think tank the Centre of Economics and Business Research (CEBR) suggest that the City of London and financial services in particular will continue to experience weak growth conditions.
But economic activity may shift to the media, internet & creative industries (MIC) which the think tank is dubbing the ‘flat white' economy after a popular style of coffee. The CEBR also believes that more traditional business services such as business consultancy and accountancy will also flourish. The think tank points out that one fifth of all the computer and telecoms related jobs are based in London while it says output in business services should continue to grow by 1.9 per cent in 2013.
The CEBR says its findings corroborate the results of the 2012 ICAEW / Grant Thornton Business Confidence Monitor for the fourth quarter. The survey found that confidence in business prospects for the coming 12 months is much higher among IT & Communications and Business Services firms, which scored Confidence Index readings of +12.8 and +7.4 respectively. The contrasted rather starkly with banking, finance and insurance companies, which scored just +1.2 on average in 2012.
The think tank's new estimate is for London's economy to record just 0.2 per cent growth in 2012 followed by a 1.1 per cent rise in 2013. Growth in London is expected to outpace the UK overall but remain behind higher growth in the South East and East of England in the short term, as the capital is held back by a shrinking financial services sector. However, London is expected to lead the pack once again by 2016. The CEBR points out that MIC sectors tend to pay less but employ more people. It says: "The business model of the up-and-coming MIC sectors and the more traditional business services sectors tend to be more labour intensive than finance. Remuneration levels reflect this, with financial pay often concentrated in fewer, high-earning individuals."
It points out that the average annual earnings in finance & insurance during the year to August 2012 were £52,000, compared to £41,000 in IT & communications and £36,000 for business services. The think tank believes that the change in the economic focus of London is causing a shift in the centre of gravity to the east of the city. Reflecting this, the Greater London Authority (GLA) forecasts strong job creation in the East of London over the next two decades. Employment is projected to rise by 31 per cent by 2031 in Inner London East. This compares to employment growth of a relatively slow 9 per cent over the same period in Inner London West. It adds that buoyant employment growth across MIC and business services is expected to help boost net job creation across the capital as a whole. It suggests that London's employment levels are forecast to rise by 1.0% over 2012 as a whole partially due to Olympic effects and by 0.8% in 2013.
However it will stay stubbornly high. The rate is likely to fall from 9.1 per cent to 8.7 per cent because London will also see rapid growth in the economically active population. The think tank adds: "These economic changes are changing the shape of London. Increasingly, employees in key growth sectors can't afford (or choose not) to live in the West London and prefer to inhabit burgeoning eastern boroughs. Government infrastructure investment in the region in the run-up to the 2012 Olympics has helped to kick start local development and we expect growth in the East of London population continue.
East London has already seen much faster population growth in the decade between 2001 and 2011 compared with elsewhere in the capital, with resident population rising by roughly 25% in Tower Hamlets and Newham and almost 20% in Hackney. At the same time, the population of Kensington and Chelsea fell back." CEBR Head of Macroeconomics Charles Davis says: "London is evolving and adapting to life post-financial crisis. While in the short term there has been no shortage of pain with job losses across the City and economic output broadly flat in 2012, we think there are positive signs that the capital is adjusting and new sectors are taking prominence in different parts of London away from the City and West End. "This economic shift is also driving social change as population in East London booms. While this change was already taking place, the impetus provided by the Olympics has helped to secure infrastructure investment which should contribute to further growth in both employment and population in East London."