Recovery hopes hit by cut in growth forecast

HOPES of an upturn in the London economy were dealt a blow as a key growth forecast was cut for the second time in three months.

The London Chamber of Commerce said it expected the capital's economy to grow by just 2% in 2003 after seeing a weak first half.

Although the figure is still slightly higher than the growth of 1.9% last year, the chamber had forecast growth of 2.4% for this year in May and as much as 2.8% in February.

Retailers, business services and the City are all set to see sluggish growth, while manufacturing output in London is expected to fall for the third year in a row. Only the public sector is set to see strong growth at 3.5%. Recovery is likely to come gradually with growth of 2.2% expected next year and a figure of 2.9% pencilled in for 2005.

The study follows a report published by the chamber last month which showed that business confidence in the capital remained muted, despite recovering from a five-year low seen on the first quarter of the year during the build-up to war in Iraq.

Justine Lovatt, the chamber's chief economist, said: "The first half of 2003 has been very weak for London. Business confidence fell to its lowest for over five years in the first quarter according to the chamber's London Monitor business confidence survey, and although it has recovered since the end of the war with Iraq it remains very low."

The slowdown in the capital's housing market is expected to have taken a toll on London's retailers with growth expected to reach just 2.5% compared to 4.1% last year.

Meanwhile, the traditionally strong business services sector, which includes areas such as IT and telecommunications, will grow by just 2.2% this year, roughly half its average rate over the past decade.

And finance will show some improvement with growth of 1% as stock markets pick up compared to zero growth last year. But the forecast is down on the chamber's earlier prediction of 1.3%.