Chapter 2: London's economy and business

London at a crossroads

Chapter 2: London's economy and business

London’s economy powers the UK. With 13 per cent of the UK’s population, the capital accounts for 24 per cent of the UK’s economic output, as measured by Gross Value Added (GVA). 48 Since the 1990s, economic activity in London has seen both specialisation and internationalisation, with close links between these two trends. This chapter reviews how these trends have affected London and examines some of the long-term challenges that have built up over that period.

Growth, resilience and specialisation

The total number of employee jobs in London has grown from 3.8 to 5.3 million since 1990, with a further one million self-employed workers. Within that growth, as Figure 4 indicates, there has been a shift from manufacturing and primary sectors to service sectors. The latter range from high-value added professional services, such as law, finance and consultancy, to public and private services that support the rest of the economy and its rapidly growing population (such as education and retail).

Against many expectations, London proved relatively resilient to the financial crisis of 2008 and the recession that followed. Between 2008 and 2012, job numbers fell slightly in financial services, and more sharply in construction and retail, but continued to grow quickly in health, hospitality, real estate and professional services. The reasons for this resilience have been debated, not least given the roots of the crisis in the financial services sector. Suggestions for explanatory factors have included the 2012 Olympics, London’s “plutonomy” population of wealthy individuals, and the role of quantitative easing in channelling investment into equity markets and property. 49

Looking at a more detailed breakdown of the fastest growing sectors – those that added at least 50,000 jobs between 1998 and 2016 – the characteristics of growth sectors become clearer (see Table 2). Growth has been particularly fast in head office services, tech, architecture, advertising, TV production and legal services, but also among security guards, care workers, hotel and restaurant staff, retail staff, and gym workers – the public and private sector workers who make a global city function. In some sectors, such as health and education, employment growth is driven by both population change and London’s increasing global reach – for example, the growing reputation of London’s universities.

The “big bang” financial service reforms of the late 1980s may have been instrumental in London’s economic revival, and in building the iconic towers of the City of London and Canary Wharf. However, growth has also been seen across a much wider range of industry sectors. These include converging fields such as fintech – which combines London’s traditional financial services strength with its newer reputation as a tech hub – as well as a number of other cultural and creative enterprises.

These new sectors have changed the once-rigid business geography of London, bringing finance to the West End and South Bank, tech to the City and Canary Wharf, and creative industries to the studios of Dalston and Dagenham. London’s mix – of access to capital, international communications, a lively cultural scene, a stable regulatory environment, and a broad and deep talent pool – has proved attractive to startups and growing businesses as well as multinational corporations seeking a European base.

Global trade and talent

London’s economy has also internationalised over this period. The city has become more prominent as a destination for international investment, particularly through corporate property acquisition and head office openings. Between 1990 and 2011, the proportion of non-UK investment in London’s commercial real estate rose from 21 to 52 per cent, 50 and from 2003 to 2018 London attracted 15 per cent of foreign head office investments in Europe. 51 The city also acts as a safe haven for the world’s rich: London is second only to New York in Knight Frank’s 2020 City Wealth Index. 52 These financial flows have fuelled everything from London’s booming commercial and residential property markets to the hospitality industry, galleries and art sales.

London is also a growing exporter of services throughout Europe and the world. Exports can be hard to measure, but London made around £117 billion in service sector exports in 2016 – 46 per cent of the UK total. Of these exports, £72 billion came from information and communications, financial services and professional services, while “travel” (i.e. spending by overseas tourists, students and other visitors) accounted for £19 billion. 53

Finally, and perhaps most significantly, London has a hugely internationalised workforce. Around 26 per cent of London’s workers are non-UK nationals, compared to 12 per cent across the UK (see Figure 5). Of these workers, 16 per cent come from other European countries, and 10 per cent from the rest of the world. The number of foreign workers has grown by around 50 per cent since 2008: most of that growth has been in the European workforce, though this may change after the proposed “level playing field” post-Brexit immigration regime. 54

The migration of highly educated workers from overseas and other parts of the UK has given London a workforce twice as qualified as the rest of the UK in many sectors. This is a boon to London’s employers, and to the city’s productivity, but it is also a potential barrier to career progression for Londoners with fewer qualifications. London can act as an “opportunity engine”, boosting the careers of highly educated young people, but this opportunity is not open to all.

Challenges: stalled productivity, poor pay and global slowdown

While London’s economy has achieved impressive growth over the last thirty years, it has also faced significant challenges. One of these is London’s stagnating productivity. Until the financial crisis of 2008, London’s economy was growing faster than the rest of the UK’s – and faster than the size of its workforce – because of improvements in productivity. Since then productivity growth in the capital has stalled, only tracking the UK as a whole – although London remains one of the most productive European regions. This slowdown in productivity growth has affected most sectors, but is more concentrated in firms operating in east and outer London than those in central and inner west London. Explanations for the slowdown have ranged from firms preferring to hire more workers for low wages rather than investing in automation, to a slowdown in global trade. 55

A second challenge is connected to this. In many sectors, London’s wages are simply too low, with the result that poverty levels have remained stubbornly high. Unemployment levels had plummeted before the coronavirus crisis, falling from over 14 per cent in 1994 to around four per cent in 2019, even though rates remain much higher for some groups (for example disabled people, young people and some ethnic minority groups). Despite the rise in employment, however, poverty levels have remained broadly unchanged, barely falling at all between 1996/97 and 2017/18 (see Chapter 1 for more discussion of this issue).

Figure 6 shows wages for the 10th and 25th percentile of workers (i.e. the highest pay earned by people in the lowest 10 and 25 per cent of workers in a specific sector). In sectors such as retail, accommodation and food, the bottom 10 per cent of workers are only just paid at the level of the National Living Wage (which applies to workers aged 25 and over), despite much higher living costs in London. In reality many are paid below this level, due to weak enforcement, the growth in zero-hour contracts, and freelancing. In these and several other sectors, nobody in the lowest 25 per cent of earners is paid more than the London Living Wage, which is designed to reflect the cost of living in London more fully and has been endorsed by successive Mayors of London.

A third challenge is the obverse of London’s international profile and the success the city has enjoyed in an era of rapid globalisation. London is a city that thrives on global trade and accessibility – but the short-term impact of COVID-19, the medium-term impact of Brexit, and longer-term shifts in global power are creating uncertainty in patterns of global trade and migration. Any reversing of globalisation may impact negatively on everything from London’s workforce, to its property prices, to the specialisms that have propelled success to date.

By conventional metrics, London’s economy in recent decades has been a world leader, but increasingly experts doubt whether the blunt metrics of economic output successfully measure welfare or prosperity as most would understand it. Some have advocated different approaches – not only to live within environmental limits, but also to offer better and fairer living conditions to citizens. 56

These debates are not easily resolved, but it is clear that London’s economic growth has not remedied the problems of poverty and disadvantage in the capital, nor those of environmental damage. As London looks to the future, seeking to respond to a fast-changing global and technological context, it will need to consider what form of economic development will best meet its needs without undermining sustainability or increasing societal tensions. The questions we must continue to discuss include:

  • What should London’s economic goal, or goals, be?
  • What should be the priorities for revitalising London’s economy in the longer term as it recovers from COVID-19, and how should these be balanced with the need for environmental sustainability?
  • What are likely to be the key industries in London’s longer-term future?
  • How might we enable Londoners to compete more effectively for the jobs that the capital is likely to offer in the future?
  • How might London take advantage of the opportunities of Brexit, and mitigate any negative impact?
  • What measures should be taken to increase London’s economic dynamism?
  • 48 Office for National Statistics. (2020). Regional Economic Activity, 2019.
  • 49 See, for example, Gordon, I. R. (2016). Quantitative easing of an international financial centre: how central London came so well out of the post-2007 crisis. Cambridge Journal of Regions, Economy and Society, 9 (2). Retrieved from:
  • 50 Clark, G. (2015). The Making of a World City: London 1991 to 2021. Wiley-Blackwell.
  • 51 Bosetti, N., and Brown. J. (2018). Head Office: London’s future as a corporate centre. London: Centre for London.
  • 52 Knight Frank. (2020). The Wealth Report 2020. Retrieved from:
  • 53 Office for National Statistics. (2018). Estimates of service sector exports by NUTS1 region, 2018.
  • 54 Office for National Statistics. Annual Population Survey.
  • 55 Rocks, C. (2019). Productivity trends in London. London: GLA.
  • 56 See, for example, the work of Kate Raworth and Diana Coyle.