London is emerging from lockdown bruised by Brexit and a pandemic that hit the UK capital harder than other regions, raising questions about its ability to power the country’s economic recovery.
The city accounts for a quarter of UK output and suffered almost 30% of the drop in payrolls countrywide in the past year, official data show. People are moving to the suburbs and beyond in search of space, and Britain’s exit from the EU is draining away high-paying work in finance.
Those are just a few of the headwinds confronting Europe’s biggest city as prime minister Boris Johnson eases rules that brought much of the economy to a halt.
With many restrictions set to remain until the end of June, London is starting to grapple with longer-term trends eating away at its appeal, like working from home and tighter border controls because of Brexit and the virus.
“If London struggles and I were the national government, I’d be deeply worried,” said Andrew Carter, chief executive of the Centre for Cities, a non-partisan research group.
While New York is springing back to life, much of London remains at a standstill. Office workers have been told to stay at home until June 21, leaving events and nightclubs out of action.
Migrant workers that staffed the once-booming hospitality industry have left in their tens of thousands, and new visa rules after Brexit will make it harder for many of them to return.
The financial district also is suffering from Brexit, which ended the automatic right of banks to do business on the continent. More than 440 financial firms have moved some of their operations into the EU, resulting in about 7,400 job relocations and a €1bn shift of assets.
Those factors will weigh on the next mayor, who must revive a battered economy and bring a transport system back to life with uncertainty about how many office workers will remain at home, and for how many days a week.
Incumbent Sadiq Khan of the Labour Party faces a Conservative challenger Shaun Bailey in an election on May 6, with about one in seven employee jobs in London – many of then in hospitality and retail – relying on government pay subsidies.
The capital’s job market could be hit hardest by the planned withdrawal of the furlough programme in the autumn, with employment set to fall by a further 150,000, or 3.9%, by the end of the year, according to the latest UK Powerhouse research compiled by the Centre for Economics and Business Research and law firm Irwin Mitchell.
London already has the highest unemployment rate of any region, and 76% of the more than 700,000 furloughed Londoners were fully idled by their employers as of the end of February.
Even when restrictions lift, many will continue splitting their time between home and the office.
Half of businesses plan to continue working remotely in some form, and a third intend to return with less physical space, according to a poll by the London Chamber of Commerce and Industry.
Meanwhile, many migrant workers returned to their country of birth when the pandemic hit. Post-Brexit immigration rules mean they will find it harder to return.
Together, it means fewer paying passengers on trains and buses, and less business for coffee shops, restaurants and gyms in the city centre. Crucially, it also spells potential labour shortages in areas from construction to retail that depend heavily on workers from the EU.
The property market has already started to adjust to new work patterns. IWG Plc, the flexible office landlord, found demand for office space in the suburbs Ealing and Chiswick rose 200% in the second quarter.
Meanwhile, house prices and rents in outer London are outperforming those in the centre as people anticipate an end to the five-day-a-week commute.