Road cleaners at work in Ilford, London on January 29. Photo / AP
Road cleaners at work in Ilford, London on January 29. Photo / AP
Even when the last Covid restrictions are lifted from London, there may be a little less bustle on its streets and elbow-jostling at its drinking dens.
One startling estimate that has caught the eye of economists warned the UK capital's population may have plunged by 700,000 during the pandemic. That would equate to an 8 per cent drop and be the first slump in London's population in more than 30 years.
The capital has been the victim of decades-long migration trends suddenly reversing. But will that spell trouble for its economy?
London's population has been hit by a double whammy of both native and foreign-born workers moving out as office work has shifted online and industries have been temporarily shuttered.
The home-working revolution has tempted office workers out of London, with many seeking cheaper rents.
Meanwhile, some foreign-born workers who are vital for industries shut down by the pandemic, such as hospitality and tourism, are believed to have moved back to their countries of birth. There are signs that populations in eastern European countries, such as Romania and Bulgaria, have risen during the crisis as their brain drains reverse.
A row of ambulances parked outside the Royal London Hospital on December 29, 2020. Photo / AP
A blow to GDP
How damaging these shifts are for London's economy hinges on whether workers return or have left for good. Bank of America warned the dire population scenario outlined by the Economic Statistics Centre of Excellence (ESCoE) could slash the UK's potential growth.
A scenario whereby the UK's population rises by 1.3 million less than currently estimated by the Office for National Statistics (ONS), and half the workers return by mid-2022, would mean no growth in the workforce between 2020 and 2025, the US bank said.
Bank of America believes potential GDP growth would be cut to a meagre 0.2 per cent, down from 0.5 per cent in its base case scenario. Potential GDP would not exceed 2019 levels until 2024, with the impact likely to be felt most in London given its outsized population declines.
"Increasing population increases demand for the whole range of goods and services from weekly shopping to houses to live in," explains Michael O'Connor, one of the economists behind the ESCoE estimates. "Every additional person adds to demand."
There are signs of trouble brewing in the property market already. Average house prices in London rose above £500,000 (NZ$954,000) for the first time ever in November, but the struggling rental market may be a better gauge of problems bubbling under the surface.
While a stamp duty cut has boosted house sales and prices, rental costs tumbled 5 per cent year-on-year across London in November, according to Zoopla data. In parts of inner London, the falls are even worse, with landlords forced to cut rents by more than a tenth in the City and 8 per cent in Kensington and Chelsea.
Paradigm shift
A prolonged decline would not be unprecedented for the city. The last major population drop suffered by London was in the decades after the Second World War, driven by old industries falling away and government policy.
Its population slid by a fifth, sinking almost 2 million by the end of the 1980s before the city enjoyed a renaissance led by booming financial services.
A customer collects items at a store in Ilford, London on January 29. Photo / AP
O'Connor says the difference this time is the immediacy of the population shock: "You don't often get a shock, which is sudden and causes some sort of paradigm shift in business and employee behaviour."
Economists are still unsure how many workers will flood back to London once the pandemic has been brought under control. Demand for labour will rise sharply if the economy comes roaring back this year as expected.
"My assumption would be that I would expect to see quite a strong bounce back," says Paul Swinney, director of policy at Centre for Cities.
He expects that London's amenities will soon be "a big pull for people the way it was pre-Covid as well" after the pandemic dampened the benefits of living in a large city, such as nightlife, shopping and a shorter commute.
Many of the capital's foreign-born workers have retained the right to work in the UK, even if they temporarily moved away.
Any shortfalls in the workforce may be easily filled initially, particularly given London has the highest unemployment rate in the UK at 7 per cent. But the new points-based immigration system makes it more difficult for low-paid and low-skilled workers new to the UK entering the jobs market after Brexit.
However, Douglas McWilliams, deputy chairman of the Centre for Economics and Business Research, says it is unlikely that any low-skilled worker shortages will hold back the capital's post-pandemic recovery.
"Normally you can substitute low-skilled labour in some way. It will get sorted in one way or the other, or just simply get sorted by high productivity."
Longer-term remote working trends could prove a bigger threat to the capital. Many companies with expensive office space in the capital have been surprised by the ease of the remote working shift.
"It's not quite clear whether people are going to be working as much in London," says McWilliams. "If they're not working as much in London, there'll be a knock-on effect on the supply of the restaurants, the bars, the clubs and they will lose a degree of critical mass."
A sustained decline would dent demand for services in the city but could also ease pressure on transport and housing. Even once the pandemic has ended for the capital, London's population bust may be one of the longest lasting legacies from the crisis.
