Covid-19 curbs and Brexit fears hammer London and leave finance district deserted
London — London enters the final days of 2020 with its position as the UK’s economic growth engine being whittled away by Brexit and the struggle to contain the coronavirus.
The decision to place the capital under the toughest Covid-19 curbs caps a year that saw the virus inflict a bigger hit on London’s job market than other regions. The city, which accounts for more than one-fifth of the UK economy, is also seeing global banks shift some people and assets to other European countries.
Figures published on Thursday by the Institute for Fiscal Studies showed that consumer spending in London was still 10% below its pre-crisis level in November. That’s more than three times the average across the UK.
The challenges have fuelled questions over how London can adapt after more than three decades of spectacular growth driven by the influx of global capital into banks, property and the countless businesses that sprang up to cater to the needs of a financial hub.
“The lack of Covid-19 economic recovery, tier 3 restrictions, and the potential of adverse Brexit impact all look to be causing a perfect storm over London,” said Richard Burge, CEO of the London Chamber of Commerce and Industry.
The threats collide in the City, as London’s banking district is known. Instead of venues packed with Christmas work parties, the streets were almost deserted on Monday, and some bars hadn’t even bothered opening. At Groveland Court, a small alley that was once home to London lord mayors, Williamson’s Tavern and The Four Sisters Townhouse cocktail bar were both shut.
While reduced consumer spending means higher savings to be tapped once the economy reopens, London may not fully benefit from that because of changes in work habits.
The capital has already seen a smaller proportion of office workers return than the likes of Hong Kong and the German state that includes Frankfurt. That’s cut the flow of Monday-Friday commuters into the City, depriving it of the torrent of people that were the fuel to its stores, restaurants and bars.
Adding to that, under the tier 3 restrictions that started on Wednesday, bars and restaurants are closed, except for takeaway meals.
This creates “huge problems for people in terms of stock, as some restaurants and pubs are geared up for their busiest week of the year, and for staff who were relying on these busy two weeks’ earnings”, said Will Beckett, founder of the Hawksmoor steakhouses. “It will be hugely expensive and will tip yet more hospitality venues into permanent closure.”
Officials say the increased restrictions were essential to stem the surge in virus cases. Health secretary Matt Hancock said they would help avert a “more damaging and longer lasting problems later”.
While progress on vaccines provides hope for 2021, Brexit negotiations have shown that the fate of finance isn’t a top priority to the UK’s political establishment. The long-term risk remains that London will see its global position weakened by a failure to agree financial markets access with the EU.
For some, however, the model that prioritised services over manufacturing and London over the rest of the country, was ripe for a change.
In the years since 1980s deregulation, the boom in London saw its economic output per capita widen to 70% above the UK average. Annual expansion has averaged 3% a year this century, the fastest of any region.
The yawning divide prompted Prime Minister Boris Johnson to make “levelling up” the country a central pledge to the campaign that won him a landslide parliamentary majority in 2019.
But the success of the finance sector remains important for the UK. It accounts for 7% of the economy as well as more than a million jobs.
Brexit and the UK’s handling of the pandemic mean that only 10% of big financial services firms are planning to establish or expand operations in the UK in the coming year, consultancy EY said in November. That’s down from 45% in April.
The city’s hotels, usually full of business people during the week and leisure travellers at the weekend, are also being hit hard.
One key industry metric of profitability is down more than 80% in the past year, according to STR, a data company focused on tourism and hotels. A lack of demand for Airbnb rentals led many landlords to offer homes to long-term tenants instead, contributing to a 25% fall in rents in central London.
“Businesses — particularly those in sectors like retail and hospitality — will have been counting on a festive fillip to help mitigate months of hardship,” said Eddie Curzon, the London director of the Confederation of British Industry, a lobby group. “Thousands of jobs and livelihoods could be at risk.”
© 2020 Bloomberg LP
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