London shoppers are helping the economy

London Chamber of Commerce predicted the capital's economy would grow by 2.8% in 2003, compared with an estimated 2.4% last year.

London was faring better than the rest of the UK despite job losses at City institutions.

The main cause of the growth was the ongoing construction boom, as builders cashed in on strong house prices, the chamber said.

London's construction industry grew by 7.6% last year, as the capital addressed its critical housing shortage.

The recession in the manufacturing sector, meanwhile, has not had such a dramatic impact in London as in other parts of the UK.

Underlying differences

But Justine Lovatt, the chamber's economist, warned that London's healthy outlook was not as rosy as it appeared.

"This figure masks major differences between sectors, with manufacturing and investment banking struggling whilst sectors such as construction is booming on the back of the property market boom," she said.

London's dependence on the housing market left the economy vulnerable to a fall in house prices.

A 20% drop in house prices this year could prompt an immediate contraction in the London economy, the chamber found.

Share outlook

The uncertainty over the war with Iraq would also play an important part in determining the health of London's economy.

But the chamber expected the stock market to recover gradually this year, although the war threat would create short-term volatility.

And the chamber forecast that the beleaguered business services industry would rebound to show 3.4% growth this year.