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Crisis of confidence
London has been riding the wave of booming global financial markets and an economy that has continued to attract significant levels of investment from abroad, but there are signs that it is starting to feel the pace.
Business confidence recently fell to the lowest in the UK as the region became the less optimistic area in the country on the back of rising interest rates and the sub-prime mortgage problems that initially hit the US, according to the Institute of Chartered Accountants in England and Wales.
On top of this a recent report from the CBI/KPMG found a growing skills gap in the capital with 74 per cent of companies reporting problems with finding skilled staff – up from 61 per cent last year – and the expectations are that this will get worse.
Another problem highlighted in the report was the perennial Achilles Heel of London: transport. A massive 86 per cent of businesses believe it had damaged their productivity. Despite the initial success of the congestion zone, which led to its expansion, congestion has returned to original levels. And London Underground continues to be plagued with infrastructure issues.
The clear warning is that London should not take its position as the most important city in the world economy, according to a MasterCard report, as guaranteed. This top spot is based on London’s much-applauded transparent business regulation and stable legal and economic framework, which could be lost through a lack of investment.
Investment is regarded as a growing problem by consultancy Oxford Economics, which calculates Londoners on average pay £1,700 more to the Treasury than they receive in public expenditure. This has produced a massive budget surplus that many argue should be used on much-needed infrastructure projects – such as the creaking transport system and improved housing.
These figures combined with those from Office for National Statistics, which found that Londoners produced 53 per cent more goods and services than the UK average, led trade body London First to recently warn that there is a risk of jeopardising the competitiveness of the city and the UK as a whole if vital investment is not made.
It’s clearly not all bad news on the investment front as a number of high profile projects are well underway. These include the regeneration around East London as part of the Olympics preparations, the new Eurostar terminal at St Pancras station is due to open in November 14, Crossrail has been approved by the government an will be ready by 2017, and a serious number of landmark mixed-use buildings are planned. In addition, London Mayor Ken Livingstone has given the go-ahead to a £10m investment for 100 of the capital’s public sector buildings to undergo a green makeover that will increase their energy efficiency by 25 per cent.
This all contributes to making London attractive to foreign direct investment (FDI), which this past year included a large influx of capital from Asia. Chinese and Indian-owned businesses have been major investors in the city with the latter now accounting for 16 per cent of new investment flow – second only to the US. This helped push up the value of FDI to £52bn compared with £38bn two years ago.
In tandem with this increased foreign investment London continues to attract ever-greater numbers of wealthy individuals and business people from around the world. This has boosted housing prices in prime central locations, which has had a ripple effect on property values throughout the rest of the capital.
This is a major contributory factor behind London’s rise to second spot in the table of the world’s most expensive cities, compiled by Mercer Human Resource Consulting, which showed that the UK capital had climbed three places – to just behind Moscow – on the back of a sharp increase in rents and the strength of the pound.
Glynn Davis is a London-based business journalist