The decline and rise of London
* London is a major force in the UK economy, accounting for between a quarter and a third of UK output, depending on how the boundaries are drawn. And London is, by a multiple of over seven, the UK’s most populous city.
* Yet the familiar story of London as the powerhouse of the British economy is relatively new. Within living memory London was a city in decline. Its population peaked in the late 1930s before going into a long decline. London’s population shrank by over a fifth between 1941 and 1992, losing two million people at a time of rapid growth in the UK’s wider population. Its economy also underperformed. The economic historian, Professor Nicholas Crafts, estimates that the premium of London GDP per head over the UK average shrunk from a peak of 65% in 1911 to 23% by 1971.
* Poor housing, pollution and the decline of established industries weighed heavily on London during this period. Before the second world war the government was making plans for the demolition of vast tracts of slum housing. Bombing during the war did some of the planners work and, from 1945, further demolitions and the construction of new towns such as Stevenage, Hemel Hempstead and Bracknell, led to an exodus of people to the outer London boroughs and beyond. The population of Tower Hamlets’, one of the city’s most populous boroughs, shrank from over 600,000 in 1901 to less than a quarter by 1981.
* Sectors, particularly manufacturing and the docks, which were once significant sources of employment, declined in the second half of the twentieth century. Anxious to push development to the rest of the country the government crimped London’s growth by restricting the development of new factories and office space.
* For those that stayed air pollution and ‘pea-souper’ fogs, long a feature of London life, became ever more dangerous. They culminated in the Great Smog of December 1952, which killed an estimated 4,000 people in less than four weeks, with thousands more dying in the ensuing months. It was the worst air pollution event in Britain’s history and powerfully illustrated the disadvantages of life in London.
* While London’s population shrank many more people commuted in from the suburbs or the Home Counties. The average commuting distance rose from 7 km to 21 km in the twentieth century. The number who walked to work, which in the period 1890-1919 accounted for well over a quarter of the London workforce, had collapsed to low single digits by the 1990s.
* London’s fortunes started to revive at the end of the 1970s. A new wave of globalisation and economic integration played to London’s historic role as a financial centre. Under Mrs Thatcher pro-market policies and the ‘big bang’ reform of financial markets ushered in a period of explosive growth in finance.
* Longstanding features of London’s economy – language, law, a favourable time zone, scale, institutions and infrastructure – enabled London to prosper in a new era of globalisation.
* By 2013, London had surpassed its previous peak population and in recent decades, London’s economy has grown about one percentage point faster than the economy of the UK as a whole.
* It has not been plain sailing. The global financial crisis of 2007–09 hit London hard. Financial services, London’s most important sector, entered a deep recession, with output declining by 13% and 20,000 lost jobs.
* The truth, however, is that financial services were never the only show in town. At its peak, financial services accounted for 20% of London’s output; today it makes up 15% of the total. In recent decades job growth has been far stronger in IT, communications and consulting. The proportion of London’s workforce in financial services has shrunk from 8.4% to 6.5% in the last 30 years. Put another way, 14 out of every 15 people who work in London do not work in financial services.
* Despite its manifest success in recent decades London faces great challenges. Concern about air pollution and housing loom large, much as they did in the 1940s and 1950s. Official data suggest that measured happiness in London is the lowest in the UK.
* The fortunes of cities, regions and countries shift over time. In the twentieth century London first boomed, then declined and finally recovered. For cities, as for countries, economic success is never assured.
OUR REVIEW OF LAST WEEK’S NEWS
The UK FTSE 100 equity index ended the week barely down 0.1% at 7,109.
Economics and business
* China announced that it would apply additional tariffs of 5% and 10% on $75 billion of US imports from September in retaliation to the US imposition of additional tariffs on Chinese imports earlier in August
* In response, US President Donald Trump announced an increase in tariffs on almost all Chinese imports. The move prompted sell-offs on US and European exchanges
* The minutes from the US Federal Reserve’s July monetary policy meeting revealed significant divergence in opinion among members of its rate-setting committee, with two voting against the eventual rate cut
* At the Kansas City Fed’s annual Jackson Hole conference, Fed chair Jerome Powell highlighted the policy challenge of reconciling the “favourable” US economic outlook with slowing global growth, trade uncertainty and subdued inflation
* Also at Jackson Hole, Bank of England governor Mark Carney called for the IMF to help build a global monetary system less reliant on the US dollar
* The Trump administration amended the Volcker rule to allow banks to determine which (instead of all) of their positions constitute proprietary trading that requires regulatory oversight, a move widely seen as an easing of regulation
* The yield on two-year US treasury bills rose above that on ten-year US government bonds twice last week, in further instances of yield curve inversion, which often occurs before recessions
* Purchasing manager surveys indicated that manufacturing activity in August contracted in the eurozone, Japan and the US, offset by continued growth in services
* Intra-eurozone trade in June contracted at the fastest pace since 2013, indicating the toll that the US-China trade war is taking on the economic bloc
* The German central bank warned that the German economy was at risk of falling into recession, given that growth was likely to contract for a second consecutive quarter in July-September
* German bank Berlin Hyp sold €1 billion in mortgage-backed bonds at a record-low yield of minus 0.59%, becoming the first non-state entity to sell a euro-denominated bond with a negative yield
* The German government also sold a 30-year bond at a negative yield and without coupon payments, both for the first time, although demand was weaker than expected
* China’s central bank introduced a new benchmark interest rate, the loan prime rate, effectively easing credit conditions
* French president Emmanuel Macron dropped the custom of a joint final communiqué at the G7 summit in Biarritz to avoid possible disputes between Mr Trump and other leaders
* Following a record-high number of fire outbreaks in the Amazon rainforest, Mr Macron called for climate change to top the G7 summit agenda
* Mr Trump cancelled a state visit to Denmark after Danish prime minister Mette Frederiksen referred to Mr Trump’s interest in the US buying Greenland as “absurd”
* The Business Roundtable, an association of US chief executives, released a statement signed by 181 CEOs committing to lead their companies for the benefit of all stakeholders rather than focusing mainly on shareholders
* Shale gas company Cuadrilla suspended its fracking operations in Lancashire following the biggest earthquake to date at the project site
* Iron ore prices fell to a six-month low owing to weaker Chinese demand
* Mining company BHP announced a record dividend of 78 cents a share on the back of 2% growth in profits
Brexit and European politics
* The EU rejected UK prime minister Boris Johnson’s demand to remove the Irish border backstop from the UK’s withdrawal agreement, stating that the UK had offered no “realistic alternatives” to it
* On 22 August German chancellor Angel Merkel expressed her hope that the UK and the EU could come to an agreement before 31 October, leading to an appreciation in sterling
* Mr Johnson said at the G7 summit that the UK would not need to pay the EU the full £39 billion divorce bill in the event of a no-deal Brexit. The FT reported that an EU official said that the UK would still owe the money even in the case of no deal, in line with the UK’s existing financial obligations to the EU
* Mr Johnson’s office said that “free movement, as it currently stands will end” on 31 October in the event of a no-deal Brexit, raising concerns that the UK would use movement of EU citizens as a bargaining chip in ongoing negotiations
* UK net migration fell by 12% to 226,000 in the 12 months to March, owing to a decline in immigration from the EU
* The UK and South Korea signed a ‘continuity Free Trade Agreement’ allowing bilateral trade to continue in the event of a no-deal Brexit
* The UK recorded a budget surplus of £1.3 billion in July, £2.2 billion less than in the same period of 2018, owing to a contraction in revenue and higher spending on civil servants related to Brexit preparations
* Italian prime minister Giuseppe Conte resigned, pre-empting the call of ruling coalition partner and Northern League party leader Matteo Salvini for a no-confidence vote in the government
* The Financial Times reported that the EU is considering a €100 billion fund to finance European industrial champions to compete with leading US and Chinese technology companies
And finally... researchers in Australia recorded fish singing choruses at dawn and dusk just like birds. The fish that make these noises are called ‘soloist fish’, but when a group of them come together their sounds overlap to create a chorus – o sole mio