Growth in London will outpace the rest of the UK over the next two years, according to a new study.
The capital’s economy will see two per cent growth this year before slowing slightly to grow by 1.8 per cent in 2018, forecasts from PwC show.
The UK economy as a whole will grow faster than previously expected, PwC said, after it revised up its forecast significantly from 1.2 per cent to 1.6 per cent expansion this year.
The projections are lower than those of the government’s Budget watchdog, the Office for Budget Responsibility (OBR), which predicts growth will actually accelerate to two per cent this year.
Despite the City’s dominance non-financial services, from the legal industry to hotels, have been key to London’s economic growth, said John Hawksworth, chief economist at PwC.
However, growth prospects for London and the UK as a whole will depend in part on openness to talent after leaving the EU. Hawksworth said: “As long as we remain open to people coming into the economy that would support GDP growth.”
While PwC predicts London will outperform the rest of the country, growth will be weighed down as activity in the dominant services sector slows amid flat investment.
Long-term investment may be delayed as firms closely watch the progress of trade negotiations with the EU. The UK is set to officially begin the process of leaving the EU on Wednesday once Prime Minister Theresa May triggers Article 50.
Growth in the business services and finance sector is forecast to slow from 2.7 per cent last year to around 1.6 per cent this year, before recovering somewhat in 2018. The sector, dominated by the City, accounts for 32 per cent of the UK economy.
London’s total gross value added (GVA), the main measure of economic growth at a regional level, by income is by far the largest, reflecting its economic dominance, but in growth terms it lagged behind the North West’s 3.6 per cent growth in 2015, according to the most up-to-date official measurements of GVA, by the Office for National Statistics (ONS).
Expansion in the capital’s economy will be double that of the worst-performing region in the UK in 2018, Northern Ireland, according to the forecast.