London’s back in business as activity hits 18-month high

Hugo Duncan
14 Sep 2009

London today looked to have put the worst of the Lehman Brothers crisis behind it just a year after the collapse of the investment bank.

A survey showed business activity in the capital hit an 18-month high in August, fuelling hopes that the recession is drawing to a close.

The dramatic failure of Lehman sent the global economy into a tailspin and sparked the most vicious slump since the Great Depression.

Shares around the world plunged in the aftermath of the shock but have rallied sharply in recent months, boosting business in the City of London and Canary Wharf.

The FTSE 100 index hit a low of 3512 in March, but last week smashed back through 5000. It was down 28.56 to 4982.91 today. Global stock markets have also enjoyed a healthy recovery.

However, shocking figures from the London High Street today served as a timely reminder that the road to recovery will be long and painful.

Unemployment also rose sharply last month in the capital.

The British Retail Consortium (BRC) said sales in London last month were 5.9% lower than a year ago as shoppers tightened their belts.

“These results don't suggest the recovery is under way,” said BRC director general Stephen Robertson.

Economic researchers at Markit were more upbeat after a survey showed business activity in London expanded at its fastest pace in 18 months in August.

The so-called Purchasing Managers' Index, where anything above 50 represents growth, rose from 52.1 in July to 54.2 in August.

Activity in the south-east was also at an 18-month high with the index rising from 53 to 53.8.

The recovery in both London and the south-east is lagging just behind the rest of the UK where the index hit 54.3 last month.

Markit economist Tim Moore said: “The phrase a rising tide lifts all boats' seems apt for the UK regions at present, with a broad-based rebound in economic conditions under way amid a flood of monetary easing and fiscal stimulus packages.”

Firms continued to shed staff last month with Londoners losing their jobs quicker than anywhere else in the UK. Moore said demand remained “fragile as the economy begins to pull out of recession”.

The influential Ernst & Young Item Club also warned that increases in house prices in recent months were “a false dawn” and said values will not return to their 2007 peak for at least another five years.

Hetal Mehta, senior economic advisor to Item, said: “Price rises largely reflect the acute shortage of available properties, with many homeowners either trapped in negative equity or reluctant to sell for fear of locking in the losses of the past two years.

“A small number of cash-rich buyers have supported prices, but the supply of these funds is limited, which means prices are likely to dip again in the first half of next year.”