London businesses are predicting inflation and high interest rates will dampen prospects in the first half of 2024, according to the London Chamber of Commerce and Industry’s (LCCI) latest quarterly economic survey.
The Q4 2023 edition of the Capital 500, the longest-running private business survey conducted by a regional Chamber of Commerce across the UK every quarter, also found that firms remain pessimistic about the prospects of London’s economy over the next 12 months.
The latest survey was conducted by Savanta, interviewing 505 London-based business leaders. Foretelling the unexpected rise in inflation as reported by the ONS recently, the survey found that inflation was still the number one concern for London firms, with 66% of companies feeling more concerned about inflation in Q4 of 2023 than they had in previous months. Four in ten firms (41%) also reported that interest rates had become a bigger concern.
Statistics from the survey underscores businesses’ uncertainty about the prospects of both London and the UK’s economy over the next 12 months, reinforcing the need for the Government to outline a long-term strategic plan for growth.
Key findings include:
- Only 28% of those surveyed expect London’s economy to improve in the next 12 months, with the figure at 26% for the UK economy.
- The stubbornly high – and still rising – cost of raw materials continues to dampen confidence in the wider economy; 54% and 66% of London businesses reported respective increases in the cost of fuel and energy during Q4 2023.
- Firms expect to pass on inflationary and utility cost pressures onto consumers, with over half (52%) naming the high cost of gas and electricity as the biggest pressure on price increases. This paints a bleak picture for the cost-of-living crisis.
However, despite businesses’ negative outlook for the economy, confidence in their own prospects for the next 12 months reached the highest level ever seen in the decade-long history of the Capital 500. Half of all London businesses surveyed expect their profitability to improve in the next 12 months and 48% expect their turnover will increase, a rise of 5% from the previous quarter.
The increase in business confidence can be attributed in part to a rise in domestic sales. A quarter of businesses (25%) reported that demand for their products or services from within the UK had increased, up from Q3 2023. Other positive factors in business confidence included an increase in overall business cashflow (up to 26% from 23%), showing that consumers were returning to firms after a difficult first half of 2023. However, export demand dropped in the last quarter of 2023, with just one in 10 (11%) of those surveyed reporting that export sales had increased during Q4 2023, compared with 15% in Q3 2023.
The Capital 500 also seeks to understand the employment market, and it found that there was little change in London’s labour market between Q3 and Q4 2023. London’s employment balance, which monitors the changes in the size of London’s workforce (with 0 being no change) moved from -2 to -3 and larger companies saw the largest decrease in the size of their workforce.
Despite difficulties hiring towards the end of 2023, firms did look to recruit, invest in existing staff, and train during Q4 of 2023, with 27% of London business reporting they had looked to recruit, up from 26% in Q3. This small rise in recruitment originated from larger businesses, of whom three quarters (73%) said they had tried to recruit in Q4 2023 (up from 59% in Q3).
Reacting to the findings of the report, Karim Fatehi CBE, Interim Chief Executive of the London Chamber of Commerce and Industry (LCCI), said:
“These findings present a mixed picture for our city. On one hand, cost pressures – including stubbornly high inflation, energy prices that continue to rise and concern about the prospects of the wider economy – indicate that many firms will be struggling to stay afloat. On the other hand, businesses have never been more confident about their own prospects, with 50% predicting an increase in their own profitability over the next 12 months.
“As we look ahead to the UK general election in 2024, businesses desperately need clarity on the Government’s – and the Opposition’s – strategy to improve the current operating climate. Only then will businesses, the lifeblood of our economy, be able to see through the current storm and plan a long-term route for growth.”
James Watkins, Head of Policy and Public Impact, London Chamber of Commerce and Industry, said:
“London businesses yet again demonstrated their entrepreneurialism and creativity with a boost in business confidence. This shows yet again how the capital’s business community are at the forefront of driving the national economy forward. With London being the business capital, the determination to provide high-quality goods and services remained undaunted.
“The good news continued with the demand for skilled workers remaining buoyant. The talent and skills which exists across London is fundamental to the capital’s success. However, the headwinds which businesses have to cope with are still there – high supply chain costs amidst the continuing cost of living crisis. This is why the work of the London Chamber of Commerce and Industry remains so critical for businesses in every London borough. With our practical business support programme combined with our networking events and our comprehensive international trade services, firms can rely on the Chamber to deliver during turbulent times.
“It also means that the Chamber has to speak truth to power so that our firms can grow and prosper. So – in 2024 – we are speaking to the politicians of all the major political parties in advance of the London Mayoral election, the London Assembly election and the General Election. We need action on supply chain costs, action to solve the skills crisis, action to tackle business crime, action to enhance international trade, action to invest in R&D and creativity and action to ensure London remains as the global city for business. Whatever happens in 2024, two things are certain. London businesses will remain creative and forward looking and the London Chamber will champion and support the capital’s firms now and in the times ahead.”
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