It will come as no surprise to anyone that the types of industries based in London are vastly varied. Not only do you have industries that benefit from tourists and visitors, but there is a huge financial district within the city and of course, those that call London home to their Head Quarters even though they trade globally. With such varying opportunities for business and investment, it is no surprise that Venture Capital opportunities do well, but do the UK-wide slow economic growth figures put a dampener on this?
Opportunity in London
London has long been known as a hub for start-up businesses that are looking to make it big in their chosen industries. It’s home to a number of venture capitalists, wealthy investors, and well-known investment firms. Despite being such a popular base of operations for both investors and start-ups, London, like most areas, has experienced a turbulent few years thanks to the pandemic and recession that followed. Two years after the pandemic began, multiple industries are coming back to life and there are signs of economic growth on the horizon.
Business Performance Throughout the UK
Before looking at specific industries and locations, it’s important to get an idea of the UK’s economic health as a whole over the past few years and more recently. The UK’s recovery from the pandemic and multiple lockdowns has been fairly successful; in 2020 the country’s GDP dropped by 9.4%. In 2021 this bounced back almost to pre-pandemic levels with an increase of 7.5%.
The UK’s economic recovery in 2021 was excellent and exceeded most expectations. However, economic growth for 2022 is much less promising. According to the Office for National Statistics (ONS), the country’s GDP increased by 0.8% in January 2022 to be 0.8% above pre-pandemic levels. Despite this, the British Chambers of Commerce announced that they expected economic growth to halve this year, thanks to inflation skyrocketing, huge tax hikes, and global crises like Russia invading Ukraine. The BCC downgraded its prediction for UK GDP growth this year from 4.2% to 3.6%. Even though that’s less than half of the GDP growth that the UK saw last year, it’s still an increase from pre-pandemic levels. In addition to this, consumer spending is predicted to increase by 4.4% and business investment growth is forecast to be 3.5% this year.
Of course, you can’t mention business performance, especially over the last 24 months without looking at eCommerce and how online businesses have performed. For example, the online gambling industry has had some of its best-ever figures with sites like these that showcase the best casino offers doing well. However, when you consider that for large chunks of 2020 and 2021 the only opportunity people had for entertainment was online it is unsurprising that this is the case.
The Effect This Has on Industries Within London
How does this affect London? As a whole, London operates as an independent bubble within the UK economy. While it has some bearing on what happens in the capital, there is room for maneuver.
2021 was the year of start-up growth in London, particularly in the tech sector, and as a result, London ended the year as the fourth-highest city for VC investments in the world.
Tech firms have been particularly successful in raising investments over the past year. In 2021 London tech firms raised $25.5bn. This correlates with the UK’s economic growth as a whole in 2021, but while the UK economy showed signs of slowing down in the first quarter of 2022, UK tech firms broke the mould. $10billion worth of VC funding was raised for tech firms in the first two months of January 2022 alone. This is hugely promising for the tech industry and could be partially fuelled by the pandemic. Before 2020, very few people had heard of Zoom and video calls were quite rare. By the end of the year, they became commonplace alongside a whole host of other tech developments focused on bringing people closer together at a time when families were split apart. Even though the era of Zoom calls is finally over, the tech market has continued to grow exponentially.
There’s no doubt that as we headed towards the end of 22 Q1 the market was going to be more uncertain. With the Ukraine invasion, the skyrocketing cost of living, and parts of the world still fighting to contain coronavirus, in the UK the growth of the economy began to slow.
Despite this, the UK tech ecosystem continued to grow and reached an impressive $1trillion benchmark. Alongside consumer tech, eco-conscious VC firm Future Planet Capital wowed the industry when they spent over $20million backing start-ups that focused on ocean health and clean-up within the “Blue Economy”, otherwise known as the technology that helps the oceans in some form.
The Future for Businesses in the UK
While the economy is going to be unstable for a while, both within the UK and globally, the tech industry has continued to show promising growth that is set to continue over the rest of 2022. Russell Investments put it best in their 2022 Q2 update when they said that the world economy was “dented, but not derailed”. Inflation will likely remain high for some time to come but eventually, things will calm down and more cautious investors will return to the market.
It is impossible to predict accurately what the UK economic growth will look like over the coming months, the cost of living is certainly on the increase and it cannot be denied that this will affect figures. We have lived through such times before so as the UK starts to bounce back, we don’t have any previous figures to be able to compare and use to predict. However, one thing we can be sure of is that investors and businesses are working hard to ensure that they bounce back and so far, in London at least, that does seem to be working!
