London economy steams ahead of every other UK region

Jack Barnett

LONDON’s economy is steaming ahead of every other region in the UK, but there are signs higher interest rates and a return of recession jitters is holding the capital back, a new survey shows.

Economic growth in London in June was far above the UK average and even its closest competitor, the south east, according to Natwest’s latest regional purchasing managers’ index (PMI).

The bank’s activity index hit 56 last month, far above the 50 points threshold separating growth and contraction, though it slipped from 58.5 in May.

June’s slowdown was triggered by consumers and businesses reining in spending in response to the Bank of England hiking interest rates aggres- sively to tame inflation, Natwest said.

Governor Andrew Bailey and the rest of the Monetary Policy Committee (MPC) have lifted borrowing costs 13 times in a row to five per cent. But there is a possibility the Bank could pile even more pressure on the capital and UK’s economy.

Traders are betting rates will peak at around 6.5 per cent and that the MPC may repeat last month’s 50 basis point increase in August.

“London remained the standout region of the UK economy in June with the sharpest expansions of both activity and new business of the 12 monitored areas, yet the capital was not immune to a slowdown in growth,” Catherine van Weenen, Natwest London and the south east regional board, said.

“While continuing to signal a sharp upturn overall, new business rose at a much slower pace than in May, as some firms cited that economic uncertainty and rising interest rates had dampened client spending,” she added. Anxiety about a recession has amplified lately due to expectations of further rate hikes.

Every indicator on Natwest’s PMI was in positive territory for London, signalling its economy is still growing.

Employment is up, as are new business and expectations of future income but resilient demand is keeping inflation high. Costs are also rising rapidly in London, mainly driven by higher wages and energy prices. The input price index hit 68.9, also the highest in the country.