Our July UKEO report has launched
By Chris Reeve.
The weather in London in summer is difficult to predict. One day it will be sunny and warm and the next you’ll be reaching for your jumper. Much the same could be said for the economic outlook. Following the Brexit vote, the UK economy is weathering uncertainty better than expected. However, as always, there are many challenges that London in particular, will face in 2017 and beyond. Some of the highlights from our latest UK Economic Outlook (UKEO) offer insight into the issues facing London.
We project overall UK growth to moderate from 1.8% in 2016 to around 1.5% in 2017 and 1.4% in 2018. This is due to slower consumer spending growth linked to higher inflation and the drag on business investment from ongoing political and economic uncertainty relating to the outcome of the Brexit negotiations. London growth, though remaining above the UK average, is also likely to soften in 2017-18.
The Pound: sunny days for London tourists, overcast on the high street?
London remains a top global destination for tourism. The Evening Standard recently reported that “bookings are up 21% from America and 14% from the Asia-Pacific region compared to last summer [and]... in the first quarter of 2017, a record 4.5 million overseas tourists visited the city.” The weaker pound has contributed to this influx of tourists over the past year and should continue to benefit the sector going into 2018.
London consumers on the other hand, will continue to feel the pinch from higher import prices linked to the weak pound at a time when wage growth remains modest. Growth in spending is therefore expected to remain moderate as inflation tempers household spending power.
Housing: cooling off in the city, heating up elsewhere
Our UKEO report projects that London house price inflation will continue to slow with average growth of below 3% in 2017 as a whole. Growing unaffordability and lack of supply continue to be issues in London - with average prices outpacing average earnings. This has led to recent steep house price rises in the commuter belt outside of the capital. Our research shows this is a typical pattern from past house price cycles with initial strength in London gradually rippling out to surrounding areas.
Londoners are advised to prepare for a mixed bag of economic weather. In other words, wear shorts but bring your brolly.