Londoners could face falling house prices, job losses, and non-existent bonuses, the Centre for Economics and Business Research predicts.
The projected rate of GDP growth for 2002 was revised down from 1.9% in February to 1.4% in May.
In the latest forecasts it is revised down further to only 0.7%. Next year will provide no respite for the capital either, with consumer services and the City continuing to be weak and growth reaching just 0.5%.
The latest downward revision results from the impact of the falling stock markets on the financial service sector and the impact of reduced business spending on businesses like advertising, consultancy, IT and other business services.
Three months ago there were signs that the worst of the business spending cycle was over and cebr expected a tepid recovery in London's growth in the second half of the year, led by higher advertising spending and increased spending on the other business services in which Londonspecialises. But the falls in the stock market in the past three months mean that businesses will be conserving cash and cutting back their spending for the rest of the year.
While unemployment grows and consumer spending slows, the cebr says there will also be a return to saving, according to our forecasts. They show Londoners' savings rate increasing from a low of 3.5% in 2002 to 4.9% in 2003 and 5.1% in 2004.
House prices in the capital are expected to increase by 13.9% this year compared to 2001, and then to rise by just 3.2% in 2003, before falling by 1.7% in 2004. For once rising interest rates may be a less important factor in cooling down the housing market than economic uncertainty.
A spokesman says: “While the medium term prospects for London still look positive, provided that the capital can sort out its transport problems and increase the supply of housing, in the short term it is now clear that the hoped for economic revival in the second half of this year is not going to take place.”