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Friday, 31 August, 2001, 11:15 GMT 12:15 UK
London faces economic crunch
The Notting Hill carnival
Londoners may not have much to celebrate soon
Some 144,000 jobs in London could be lost by the end of the next year as the capital's economy stalls, according to a new forecast from the Centre for Economics & Business Research (CEBR).

The CEBR predicts London's economy will grow by just 1.8% this year, compared with 2.1% for the UK as a whole.

This would be the first time since 1992 that the capital's output growth has fallen behind the national average.

The London economy is being dragged down by sluggish performance in the crucial financial services sector, as well as by the natural constraint of its high cost of living - especially property prices.

The finance business, whose prolonged boom has largely underpinned the capital's bubbly housing market, is growing at just 0.7% this year, compared with an annual rate of 6% in 2000.

Services slump

The financial slowdown is part of a wider retrenchment in the business services sector, which accounts for close to one-third of London's economic output.

Total output growth in business services, including the consulting, accountancy and advertising industries, has fallen from 4.6% in 2000 to just 1.6% this year, the CEBR found.

The City of London
The City is leading the downturn

A slump in tourism - related primarily to worries over food safety following the foot-and-mouth disease outbreak - has also had a disproportionate effect on the capital.

The CEBR was still tentatively optimistic that these factors may prove only temporary.

"At this stage we still think that a slowdown is more likely than a full-blown recession," said Kevin McCauley, who prepared the report.

Policy challenge

But news of a slowdown of any kind will still trouble policy-makers in the city, which has enjoyed a spectacular economic boom over the past five years.

The government is increasingly concerned that London's infrastructure has not kept pace with growth in its economy.

Property prices in London are twice the national average, the cost of living is among the highest in the world, and the transportation network is notoriously inefficient.

This has led to extraordinary difficulties in attracting low-paid but crucial workers such as teachers, police officers and medical staff.

London's population has grown sharply over the past few years, swollen by a strong influx from the rest of the UK and overseas.

But high prices, and the migration of a few key employers, could already be reversing the trend.

Capital losses

The Office for National Statistics recently reported that London recorded a net population fall of 70,000 people in the year to June 2000, the highest net outflow on record.

In all, almost one-quarter of a million people moved out of London last year.

A broad economic slowdown, led by a slump among high earners, should help cool the housing market, making the city more affordable.

But it will also knock sentiment, and could lead to a debt crunch among Londoners with hefty mortgages.

See also:

13 Aug 01 | Business
Slump 'has cost 25,000 bank jobs'
03 Aug 01 | Education
Cheaper homes for teachers
10 Jul 01 | UK
Q&A: Congestion charges
10 Jul 01 | Business
London homes cost twice UK average
03 Jul 01 | Business
London 'sixth dearest city in world'
28 Jun 01 | Business
UK tourism industry in crisis
04 May 01 | UK Politics
Livingstone has 'loved' his first year
05 Jan 01 | Education
Teacher shortage is 'housing problem'
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