Impact of 2012 Olympics on the Uk Economy Essay

Impact of 2012 Olympics on the UK Economy Introduction Until 16th July 2012, there are only 11 days left for the Olympics games held in London, on 27th July 2012. Beside the games, people also focus on how this momentous event will affect the UK’s economy as UK’s economy is currently suffering from the recession. Will the games attract world attention as well as huge economical benefits to UK? The objective of this essay is to investigate the economic impact of the London 2012 Olympics on the UK economy in short-term and long-term.

Due to the limitation of information, the essay will concentrate on aspects of the economic impact where most data are available such as the GDP growth and consumer spending. The impact across some key sectors such as construction, labour market and tourism will also be analysed. To be evaluated in detail, the impacts on companies in different sectors will be addressed through an analysis of stock market announcements in 2012. Background The budget for the London 2012 Olympics is continuously increasing since Britain won the bid in July 2005. The original predicted cost was ? 2. 37 billion; by the time in 2008 it was raised to ? . 35 billion, and with ? 6 billion is coming directly from the government. As UK is under an increasing pressure of the downturn in the economy, this level of public funding has been criticised by the press. However on the other side, as Ms Jowell, the minister for the Olympics and Paymaster General claimed, the Government’s spending could be seen to stimulate the economy and generate jobs for local people. (The telegraph, 12 November 2008) The total economic impact of the Games on the UK The Gross Domestic Product (GDP) is the most important measure of economic activity in a country.

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Several forecasts on the UK GDP growth due to the 2012 Olympic Games have been made by various organisations. The official forecast from the Office of Budget Responsibility is that the UK economy will grow by 0. 7% in 2012. Within that, the economy is guaranteed to grow by 0. 1% through the ? 300 million tickets sales. (The telegraph, 05 Jan 2012) Although for the first two quarters’ GDP of 2012 which have already published, showed the growth remains negative. Many economists such as Shona Dobbie, head of the economic research centre at Alliance Trust, still hold a positive attitude to the impact.

She believes that there should be a big increase in GDP in the third quarter which will decisively pull the UK out of recession. This prediction is also agreed by James Carrick, economist at Legal ;amp; General Investment Management. (Moneywise, 03 May 2012) More specifically, The Wall Street bank forecasts that GDP in the third quarter of 2012 will be boosted by between 0. 3% and 0. 4% by Olympic spending which will potentially help Britain to emerge from the recession. (The telegraph, 12 Jul 2012) In long-term, the UK GDP will be contributed directly from the 2012 Games by ? 16. billion (2012 prices) spread over 12 years according to the study from the Lloyds Banking Group, taking in the period from London’s successful bid in 2005, through until 2017 – a five year legacy period. Of this, 70% of the contribution is estimated to be generated prior to and during the Games and the remaining 30% is expected to occur as its legacy. London as the host city of the Games will be contributed most above all other areas in UK, with a 41% share of the total GDP supported. For other areas such as South East, North West and East Midlands, each will only has a share of no more than 10%.

Over all, the total economic impact of the Games on UK is significant and there is likely to have a short-term boost in economy during the games are taking place. The impact will also last for many years as legacy effect. Construction Construction is a key sector that is expected to contribute largely to the GDP growth as a result of the 2012 Olympic Games. With all the GDP that the Games contributed to, 82% is expected to be generated from the pre-and post-Games construction activity. The study from the Lloyds Banking Group states that a total of ? 13. billion (2012 prices) will be contributed by the Games-related construction activity over the 12 years. Of this, the pre- and post-Games construction will contribute ? 4. 5 billion. It is reported that 98% of the facilities for the Games which worth almost ? 6 billion have been built by British companies. (CIOB, 03 Aug 2011)The huge investment in construction helps to support employment in UK-78,000 jobs are expected to be created in this sector with a total of 267,000 jobs during the 2005 to 2017 period. The firms in UK have also been benefited by this expenditure as well. Figure 1 shows the information that The Olympic Delivery Authority (ODA) published on their expenditure on the Olympic Park projects which included the Olympic Village, the International Broadcast Centre, and the competition venues. Over 800 firms have awarded contracts from ODA. The main construction activity is taking place in and around the Olympic Village which is in Stratford city. The new Westfield has been constructed into the largest urban shopping mall in Europe and constantly drawing trade from tourists and locals. It has been proved as a success for witnesses a footfall of 160,000 on the first day alone.

Also almost 40,000 jobs have been created in Stratford. (Daniel, 2012) In long-term, an additional of ? 4 billion is expected to contribute as legacy construction impacts. The money will be spending on converting the Olympic Village into residential place and other commitments to build retail, office, and residential space. As far as it has already been planned by The London Organising Committee for the Olympic Games and Paralympic Games (LOCOG), the Olympic Village will be converting into 3,600 new apartments and homes for the local community.

This will help in improving the regeneration in east London. Then as a matter of fact, much induced long-term impact is still waiting to be seen. Labour Market The UK’s Prime Minister Gordon Brown commended the 2012 Olympic Games as job creator and growth generator in the face of economic recession when he toured the Olympic Park in east London in Jan 2009. (BBC News, 16 Jan 2009) At that time, 3,315 people have already been employed by ODA with almost one out of ten was previously unemployed.

And the construction work force was expected to increase to around 6,000 by the end of 2009. As a result of the 2012 Games, a total of 267,000 jobs are created and 78,000 jobs are expected within the construction sector. (Lloyds Banking Group, 2012) The peak of the employment created by the games related construction projects which was 12,300 people in April 2011, indicated by ODA. Not only the businesses and jobs are being created, but also the training opportunities for maximising apprenticeships which will leave a legacy of skill.

The jobs created due to the Games in other sectors are also significant. The research by Greythorn, the IT recruiter, shows that over 5,000 IT and telecoms jobs will be created in dealing with the technology services needed in holding the Games. Sectors such as construction, hospitality and retail will all contributed in increasing IT demand. Paul Winchester, managing director of Greythorn, said that as the significant increasing demand in skilled technology labour, the government predicted an even larger number which was 103,000 permanent jobs would be created by the Games. 22 March 2011, Job Market and Recruitment News from Jenrick) In long-term, while 70% of the jobs will be created before the Games, the remaining 30% jobs will be attributed to the legacy construction activity. Tourism As the 2012 Olympic Games are coming, tens of millions of visitors will arrive in UK this summer and accompanied with an injection of billions of pounds into the UK economy. The study from the Lloyds Banking Group predicts that a total of 10 million international tourists and UK residents are expected to attend London 2012 events.

And due to the legacy impacts there will be an increase of 10. 8 million in tourist visits during the period of 2005 to 2007. With this amount of tourists, the extra tourist expenditure will generate a ? 2 billion (2012 prices) to GDP and over 61,000 additional jobs will be created during this period. London, as the host city will receive the most benefits, yet a total of 41,000 jobs will be created outside the capital to support the Games. 17% of the total expenditure generated is predicted to occur before the Games, 35% during the Games and 48% in the post-Games period.

There is report said by comparing the figures for the past six Olympics, although it will witness a peak in demand during the Games, the overall tourism growth is not obvious. It is mainly due to the decline of international tourist arrivals before and after the Games. Before the Games International tourists tend to postpone their visits to coincide with the event or avoid the host city due to the consideration about disruption caused by the construction within the city. And the tourism ay slump continued with international arrivals after the Games as experienced in Beijing in 2008. (BBC News, 05 Nov 2009) However there still are evidences support the positive side such as, there will be a moderate increase in domestic business tourism as the firms seek to win and award contracts for the Games, also there is found of a 1% increase in the number of domestic residents travelling abroad during some previous big events in other European countries like the FIFA World cup in France and Germany.

In long-term, although the experiences from many previous major events indicate that legacy impact from hosting a major is small. The experiences of Australia and Germany both show a positive impact post-event. The tourism impact of the Games is therefore likely to be stretched to the future as it provides worldwide media exposure and marketing opportunities. UK may be “opened to new groups of customers” just like Germany did after the World Cup. (Lloyds Banking Group, 2012) Companies in different sectors The 2012 Olympic Games is believed to bring most companies huge businesses opportunities.

However in this case, there will be some companies suffered due to the Games. According to an analysis of stock market announcements in April 2012 found by the Telegraph, 80 companies have stated the Games could have an impact on their businesses, with 72 forecasting a positive effect and eight a negative impact. This information can be regarded as reliable in a way that the companies are required to provide accurate forecasts to their shareholders. Telecommunications, media and technology companies are suggested to benefit most from the Games. 4 technology, media and telecoms (TMT) companies have already claimed they will be boosted by London 2012 despite the announcement is released in April which the Games are still being months away. Cobham, a technology company that focus on the defence sector stated that a strong demand had continued for several video and camera products due to the Games as to maintain city’s safety as well as used in sports and movie events. Beside the TMT sector, as a key sector has analysed above, 12 construction companies have also forecasted a positive impact, accompanied with 11 support service groups that announced a boost in business.

The Games also help to generate businesses for consumer goods producers with the licence to sell branded products, such as Tandem which is selling Olympic bicycles. Coca-Cola, Acer, McDonalds and Visa, as the Olympics’ corporate partners will be also grateful to see a boost in their share prices. 10 property companies believed that the Games will help to support their businesses due to the increasing focus in London as well the consumer spending will help to boost demand for properties. Other companies that state a positive impact are in retailer sectors and transportation sectors.

There will be a likely increase in output as the companies in these sectors will cope with the additional demand from overseas visitors. However, with all these numbers of companies looking forward to see improvements in businesses due to the Games, there are 8 notable companies that may suffer during the Games. International Consolidated Airlines, the parent company of British Airways is one of them. As the previous experiences in other host cities showed, the number international tourist arrivals may fall in the pre- and post- Games periods, therefore the demand could also be dampened.

The mining companies will likely to see a fall in concrete demand after the completion of the Olympic Village. As well as the infrastructure component maker Hill & Smith Holdings declared that they will expect a period of reduced activity when the London 2012 project is completed and there will be a ban on road and transport maintenance projects in the south of UK. (The telegraph, 05 Apr 2012) Therefore, although Olympics are generally considered as an economic growth generator, not every industry is going to benefit.

Conclusion This essay investigates the possible economic impact of the London 2012 Olympics on the UK economy in short-term and long-term. Over all, the UK GDP will be contributed directly from the Games by ? 16. 5 billion (2012 prices) in a period from 2005 to 2017, with 70% is expected to be generated before and during the Games and 30% after the Games. The impact across some key sectors such as construction, labour market and tourism are analysed. Construction will be the sector that contributes most to the economic growth.

And the lasting impact in long-term also mainly depends on the legacy construction activities. The Games will prosper tourism markets in short-term. However in long-term, the effects caused by the fall in international tourist arrivals in pre- and post-Games to the total tourism growth are still waiting to be seen. The Games generated large amounts of jobs in different sectors but construction mainly. To be evaluated in detail, the impacts on companies in different sectors are addressed through an analysis of stock market announcements in 2012.

As a limitation of information, the essay only concentrates on aspects of the economic impact where most data are available. There could be other economic impacts that are under cover. And also due to the time concerned, the precise economic figures are needed for years to be calculated such as the real budget for the Games. Word Count: 2584 Yingchen Zhang (Veronica) Group 1. Appendix: *Figure 1: Source: ODA References: 1. Osborne, A. (12 Nov 2008). Tessa Jowell: London 2012 Olympics was a mistake in light of recession. Website. Available from: http://www. elegraph. co. uk/sport/olympics/london-2012/3447123/Tessa-Jowell-London-2012-Olympics-was-a-mistake-in-light-of-recession. html [Accessed 12 Jul 2012] 2. Ruddick, G. (05 Jan 2012). Tough race to turn Olympics energy into economic growth. Website. Available from: http://www. telegraph. co. uk/finance/london-olympics-business/8995602/Tough-race-to-turn-Olympics-energy-into-economic-growth. html [Accessed 12 Jul 2012] 3. Emery, R. (03 May 2012). Olympics will pull UK out of recession | Moneywise. Website. Available from: http://www. moneywise. co. k/news/2012-05-03/olympics-will-pull-uk-out-recession [Accessed 12 Jul 2012] 4. The Economic Impact of the London 2012 Olympic & Paralympics Games – A report by Oxford Economics commissioned by Lloyds Banking Group. Available from: http://www. google. co. uk/url? sa=t&rct=j&q=london+2012+olympics+economic+impact&source=web&cd=10&ved=0CGMQFjAJ&url=http%3A%2F%2Fwww. lloydsbankinggroup. com%2Fmedia%2Fpdfs%2Flbg%2F2012%2FEco_impact_report. pdf&ei=n9L-T9GVIcrA0QW2o8WABg&usg=AFQjCNEUZ8Fhn25XaN7SSFCOq1y0gYUIew [Accessed 12 Jul 2012] . Where are the plaudits for UK construction? Says CIOB |The chartered Institute of Building. (03 Aug 2011). Website. Available from: http://www. ciob. org. uk/news/where-are-plaudits-uk-construction-says-ciob-0 [Accessed 12 Jul 2012] 6. Daniel Fox. (30 Jan 2012). The False economy of the London 2012 Olympics || Independent Editor’s Choice Blogs. Website. Available from: http://blogs. independent. co. uk/2012/01/30/the-false-economy-of-the-london-2012-olympics [Accessed 12 Jul 2012] 7. BBC News | UK | Brown hails 2012 as ‘job creator’. 16 Jan 2009). Website. Available from: http://news. bbc. co. uk/1/hi/uk/7831847. stm [Accessed 12 Jul 2012] 8. London 2012 Olympics to Create more than 5,000 IT Jobs | Job Market & Recruitment News from Jenrick. (22 March 2011). Website. Available from: http://www. jenrickblog. co. uk/2011/03/london-2012-olympics-to-create-more-than-5000-it-jobs/ [Accessed 12 Jul 2012] 9. BBC News | England | London | Olympics tourism impact’ concern’. (05 Nov 2009). Website. Available from: http://news. bbc. co. uk/1/hi/8343784. stm [Accessed 12 Jul 2012]