There has been a steady flow of bad news on London's economy in the last few months. Last week, we learned that house prices were falling in the capital for the first time since the financial crisis of 2008 they were down 0.6% in the last month according to Nationwide, while rising in the rest of the country. Prime properties fell by an average of 4% and by far more in some central areas as stamp-duty rates of up to 10%, and 13% for second homes, start to bite.
As the deadline for leaving the EU looms, and with little sign of a deal being reached, banks are increasingly starting to find homes elsewhere. Bank of America is looking at space for 300 traders in Paris, according to Bloomberg. Citigroup, JP Morgan and Nomura are planning new EU bases in Frankfurt, and just about every major city in Europe is pitching for a share of the exodus.
Professional workers are heading for the exits too: there was an 80% rise in the numbers leaving the capital, with the exodus led by people in their 30s.
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Yet London remains one of the most successful cities in the world. It is by far the richest region in Europe parts of the city have GDP per capita of 580% of the EU average, while gross value added (GVA) per employee stands at £70,000 compared with £40,000 for its closest rival, Manchester. It would be a mistake to bet against it. Here's why.
First, the impact of leaving the EU has been massively overhyped. Some banks will have to move some staff, but the numbers will be relatively small. And most of London's firms will hardly notice we've left. Just over 7% of the London's economy relies on trade with the EU, the lowest level for any part of Britain, according to a report in the Regional Studies Journal, compared with 13% for Cumbria, the highest. If you don't trade with Europe, leaving won't matter.
Next, London is perfectly placed for the 21st-century economy. It combines deep expertise in technology, culture, finance and politics, along with a rich cultural heritage. Where else can you match that? Silicon Valley has tech, but not much culture. New York has finance and culture, but not much technology or political weight.
Finally, a cheaper pound will make it more attractive to outside investors. Sterling has fallen a long way. With difficult Brexit negotiations and a painful trade deficit, it is not likely to recover much of that lost ground over the next few years. One of London's few major disadvantages has been its crippling cost of living, especially for housing. For global companies, and global talent, it has suddenly become a whole lot cheaper.
Sure, the capital has its challenges. It urgently needs more houses, a new airport, and far better infrastructure. After leaving the EU, it will still need high levels of immigration to keep its businesses staffed. But London has enough going for it to thrive. The city will grow by 2.4% next year, and 2.9% the year after, reckons GLA Economics. That will easily beat Paris, and most other major cities in the world as well.
How can you play this trend? Take a look at London-focused stocks, such as the estate agent Foxtons, which has seen a huge drop in its share price, or some of the property companies that are heavily geared towards the city. If you buy into London's growth while others are selling, you will do well.
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Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.
He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.
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