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Creative London

London’s Creative Sector: 2007 update

—Alan Freeman, GLA Economics

Since peaking in 2001, total creative employment fell for three successive years before turning up in 2005. The key factor is the impact on London’s creative industries of the cyclical decline in London’s private sector industries, in particular that of Finance and Business Services, which began in 2000.

Creative industry employment is located almost entirely in the private sector, and one third of it is located in the Greater South East (GSE). Private sector employment in the GSE, in contrast both to public sector employment in the GSE and all employment outside it, fell every year from 2001 to 2004. This is a major contributing factor to the poor performance of creative industries both in London and in the South East between these years.

During 1994-2000, when London’s private sector – particularly Finance and Business Services – were expanding rapidly, London’s creative industries expanded even more rapidly. When they began contracting, the creative industries also contracted, but with a lag, having continued to grow in 2001. They then fell faster than London’s private sector from 2001 to 2004, rising only in 2005.

The evidence suggests that London’s creative industries are strongly linked to the performance of London’s private industries, and appear to be more volatile. One reason for this volatility is that creative industry products are in economic terms luxury goods. Demand for them is more income elastic, meaning that when income falls or rises, spending on creative products falls or rises even further. Creative industries are sensitive to cyclical shifts in the disposable income of the high earners typically concentrated in London, and in the spending of London’s business on creative products.

The strong economic link between London’s creative industries and London’s finance and business services sector is evidence by input-output tables produced by the Office for National Statistics. These tables confirm that business services are a major purchaser of creative industry outputs, particularly advertising, architecture and software. Altogether, 53 per cent of the demand for Britain’s creative products comes from business sources. However, expenditure on such products is particularly vulnerable to any slowdown in activity – it is well know that the first part of any business budget to go in any cost-cutting exercise is the advertising budget.

This business connection is reinforced by evidence of creative industry location. The local area study shows a heavy concentration, particularly for key driver industries such as Advertising, Architecture and Radio and Television, around and immediately next to the core business district comprising the City and its immediate fringes.

The balance of evidence is therefore that the decline in London’s creative industries seen between 2001 and 2004 is a direct result of the slowdown seen in London’s private sector, and especially London’s Finance and Business Services sector, during the early 2000.

Read more: Working Paper 22 ‘London’s Creative Sector: 2007 Update’

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