London’s powerhouse economy is starting to feel the impact of successive interest rate rises but remains thefastest growing in the UK, a new survey reveals today.
Output from the region’s services and manufacturing sectors grew in July but at a much slower rate than in previous months, according to the latest NatWest London PMI Business Activity Index.
The index stood at 52.3 in the month, down from 56 in June, in the third successive month of slowing activity. A reading of more than 50 indicates growth, below 50 points to contraction.
Catherine van Weenen, NatWest London and the South East Regional Board, said: “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.
“Against a backdrop of the first decline in new orders across the UK since January, demand growth in the capital weakened substantially in July.
“London and the West Midlands are now the only regions to record sales growth, although marked slowdowns in both areas suggesting they could easily join the rest of the country in contraction territory soon.” The survey came as London tourism bosses today warned that foreign visitors are “doing Buckingham Palace but not Bond Street” as new figures showed average shopping spend well down on pre-pandemic levels. They say that although overall numbers look healthy, shopping sprees are being saved for other capitals such as Paris or Milan, where tourists can get purchases free of VAT.
Tax-free shopping for foreign tourists was abolished by Rishi Sunak in 2021, effectively making London 20% more expensive that most of its European rival destinations in what has been dubbed a “tourism tax”.
The data from business group New West End Company shows a surge in visits from US visitors in the three months to June with flights bookings up 17% on 2019. But the total spent by American visitors was down 1%.
It was a similar picture for visitors from the members states of the Gulf Cooperation Council (GCC), Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE. Visitor numbers are up 7% compared with four years ago but spending is 17% lower.
In the great shopping destinations on the Continent it is a different picture, according to Global Blue, which handles VAT refunds. Its figures show US spending in France up by 183% compared with 2019 levels, and 174% higher in Spain. Spend from GCC visitors is up by 118% in France and by 112% in Italy.
Dee Corsi, Chief Executive of New West End Company, said: “It’s plain to see that more tourists are becoming aware of the tax-free shopping issue and choosing to spend their money in European cities other than London. While it’s reassuring that our capital city hasn’t lost its appeal when it comes to attracting overseas visitors, the widening gap between footfall and spend in Q2 should set alarm bells ringing in Westminster.”
