It's not all grim down South

Author: Dermot Finch
Date: 01/03/2009
Publication: London Business Matters

The capital - like the rest of the country - is now dealing with its first recession in a generation. It's the worst one in 30, 60 or 100 years - depending on which Minister you believe. Some commentators (and even Prime Ministers) are even using the "D" word - not downturn, but depression.

London businesses were the first to feel the impact last year, with financial services the hardest hit and headline job losses in the City - 1,500 at Citigroup, 1,900 at Merrill Lynch and Bank of America, several hundred at Barclays, and the disappearance of Lehman Brothers.

Last autumn, this led to much talk about how "it's going to be grim down South" - suggesting that the Greater South East, including London, would bear the brunt of this recession. It also resulted in some loose talk that the North was "well-placed" to weather the storm.

Now, the picture is very different. The recession is going to be a lot worse than many first thought. It's going to be more widespread - affecting not just financial services, but a host of other sectors including construction, retail, manufacturing and distribution. And it will hit every city, not just those in the South East.

Cities Outlook 2009 - the annual report from the Centre for Cities - ranks the economic performance of 64 UK cities, including London. It assesses how well placed our cities are to withstand job losses and business closures. We based our assessment on an analysis of vulnerable sectors like financial services and construction, and the skills profile of working-age adults in UK cities.

As ever, the picture across London is quite mixed. London comes top of our Economic Prosperity Index, suggesting that the capital is still best-placed to lead the UK out of recession. But the capital is most exposed to job losses in financial services - followed by Edinburgh, Bristol and Leeds. And financial services look set to shrink as an overall share of the capital's economy.

Here's another contrast. The capital has consistently been home to the highest average earnings - over £100 per week higher than Edinburgh, and £200 higher than Birmingham. But here's the catch: the wages of wealthy inner London local authorities like Kensington & Chelsea are twice those in Tower Hamlets and Barking & Dagenham.

Let's look at skills and employment. London is highly-skilled, compared to many other cities. 37 percent of its working-age population hold degree level qualifications, compared to 29 percent nationally. London also has a high proportion of employees in "knowledge intensive" businesses - the kind of innovative firms that will be crucial in a recovery.

But alongside this highly-skilled and flexible workforce, London's employment rate - 71 percent last year - has for a long time lagged behind the British average of 75 percent. This highlights the stark disparities within London, and the need to include more of its residents in the workforce when the economy recovers. 

Based on this mixed picture - on sectors, earnings and skills - we have put London on "amber" alert. We concluded that the capital is less exposed than smaller Northern cities, for example - but will be hit harder than some smaller Southern cities like Cambridge and Reading.

Mayor Johnson has a leading role to play in steering the capital through recession. He has more powers at his disposal, compared to other UK city leaders. The Mayor's Economic Recovery Action Plan - published in December - set up a "rapid response service" to deal with large-scale redundancies in hard-hit sectors. London's Employment & Skills Board is now facing its first big test. But overall, Boris's room for manoeuvre on the economy is still quite constrained. 

London was hit first by this recession, but is also in pole position to jump-start the recovery. This isn't just the UK's largest city - it's one of the few genuinely global cities. Its fundamentals are relatively strong, but its economy will look different in the years to come. Financial services will be a smaller part of the capital's economy, and new sources of growth and employment will no doubt emerge. But the path to recovery still looks quite uncertain and distant. 

A version of this article first appeared in London Business Matters.