London’s economy has continued to outpace every other region in the country even as rising interest rates and recessionary fears drag on growth across the UK, a closely watched survey has revealed.
Growth in London slowed in July as the Bank of England’s rate cycle eats away at spending power but the capital remained well ahead of the UK in the speed of its economic growth, according to Natwest’s London PMI Business Activity Index released today.
London’s index reading came in at 52.3 for the month, putting it comfortably above the contraction that has gripped most of the UK. The West Midlands was the only other region to notch an expansion last month.
London’s latest print did mark a third monthly slowdown, however, with growth falling from 56 the previous month. Analysts at Natwest warned that rapid rate hikes by the Bank of England were also likely to dent growth further in the months ahead.
“July data seems to have confirmed the trend that appeared during the second quarter, namely that the London economy has lost steam as rising interest rates take their toll on spending and activity,” said Catherine van Weenen, Natwest regional managing director of London and the South East.
The UK on the whole notched its first decline in new orders across the UK since January, and slowdowns in both London and the West Midlands could signal they will “join the rest of the country in contraction territory soon”, she added.
Demand is expected to dampen again in August after Threadneedle street moved to ramp up interest rates for a 14th straight time earlier this month to tame stubborn inflation.
UK borrowing costs now stand at 5.25 per cent, their highest since March 2008, extending the Bank’s toughest tightening cycle since the 1980s. City analysts are predicting that rates in the UK will peak at between 5.75 and six per cent.
Resilient growth in London in July also came despite businesses in the Capital feeling the pinch of rising costs harder than any other region.
Natwest’s prices index ticked up to 69.5 during July, signalling a faster pace of cost inflation faced by firms in London.
Wage pressures appeared to be driving up costs fastest in the Capital, Natwest said.