Employment levels in London might not return to pre-pandemic levels for two years despite an overall strong recovery of the capital’s economy, according to new City Hall analysis.
The latest outlook report from the Greater London Authority’s economics unit says the capital’s Gross Value Added growth rate is likely to be a vigorous 5.4 per cent this year as it continues to emerge from the Covid-19 crisis and could increase to 6.6 per cent in 2022, but that the number of workforce jobs will keep falling during 2021 before partially recovering next year.
The capital’s unemployment rate in the final quarter of 2019, before the pandemic began, was 4.3 per cent and had risen to 6.8 per cent in the first quarter of this year, which the report describes as “considerably higher than at national level”. It also warns that “as yet, official statistics only provide limited insight on the possible long-term impact of the crisis due to the size of the government support schemes”.
In London, there were 710,800 jobs protected by the coronavirus job retention scheme – more often known as the furlough scheme – as of the end of February, which the report says represents “the highest take-up rate in the UK”. The scheme has been extend to the end of September but there are concerns among borough leaders and others that joblessness will sharply increase in the late autumn and winter following its termination.
The capital’s economic resilience is attributed to some of its main employment sectors, such as financial services, property, professional, technical and communications managing to largely continue over the past year because a high proportion of people employed in those activities have been hit less hard by the lockdowns and been able to work from home.
“However, these positive effects might be offset by other features, such as the high reliance of London workers on public transport – who may be reluctant to use transport at pre-pandemic levels – and a very negative shock in terms of tourism and international students in the capital,” says the report. “There may also be a large and persistent negative shock for certain sectors such as accommodation and food services, arts, entertainment & recreation [and] education.”
The outlook report also underlines that the impact of Brexit continues to be a risk to the UK economy, with the current trade deal still not including a service element. “Given the importance of the EU to London’s service exports, the UK’s future relationship with the block in this regard will have a significant impact on London’s economic outlook,” the report says.
On the upside the report anticipates that “business and consumer confidence will improve”, helped by the success of the vaccination programme roll out, and that many people will “spend some of the savings hoarded over the last year from diminished opportunities to travel and socialise” It expects the Central Activities Zone – primarily comprising the City and the West End – to recover, though the “benefits reaped from agglomeration economies” will be limited by the time the recovery takes. The report also concludes that “the global economic environment remains extremely uncertain due to the Covid-19 outbreak”.
Image from GLA Economics report.
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