Q4: London’s business confidence dips amid weakening sales growth.
The survey results are based on 1,000 telephone interviews among ICAEW Chartered Accountants covering a range of UK sectors, regions and company sizes, ensuring a representative picture of the UK economy. The latest quarterly findings are based on the period 14 October to 13 December 2024.
- Sentiment in London declined in Q4 2024, dropping from +16.9 to +9.0, but remained well above the UK and regional historical average.
- Annual domestic sales growth eased but businesses project a significant uptick in the year ahead and they anticipate robust exports growth will continue.
- Companies expect input price inflation to moderate further over the next 12 months and salary pressures will also soften, but both are set to remain above their respective historical averages.
- London businesses reported some of the strongest profits growth of any region in Q4 2024, outpacing the UK average, and a sharper uplift is anticipated next year.
- Concern about the tax burden climbed significantly following the Budget but regulations remain the most prominent rising issue for businesses in London.
- Both R&D budgets and capital investment growth slowed in Q4 2024 and businesses plan to reduce the rate of expansion over the coming year.
Business confidence in London
Domestic sales and exports growth
Following an uptick in the previous quarter, domestic sales growth eased in Q4 2024, dropping to 2.7% year-on-year, lagging behind the national average of 3.2%. Companies in London expect sales growth to improve significantly in the year ahead to 4.6%, rising above the regional historical average of 3.0%. However, even with this uplift, the forecast for the capital is marginally lower than the 4.9% growth projected nationally.
Annual exports growth increased for the fourth consecutive quarter in Q4 2024, rising to 3.7%, and climbing further above the historical average (3.4%). Strong growth in the Banking, Finance & Insurance sector likely supported the rise in exports growth, with the capital outpacing most regions. This trend is expected to continue in the year ahead, with businesses in London projecting growth of 4.1%, slightly faster than the 4.0% rise expected across the UK.
Business challenges
Regulatory requirements continued to be the primary challenge faced by companies in London, cited by 41% in Q4 2024, and close to the historical average (43%). London is well represented by businesses in the highly regulated Banking, Finance & Insurance sector with concerns also rising sharply in the Construction sector in the latest quarter, adding to the challenge in the region.
The proposed tax rises announced in the Autumn Budget also resulted in increased concern about the tax burden compared to the previous quarter. A survey-record high of 37% of businesses reported the tax burden as a rising challenge in Q4 2024, nearly double the historical average (19%) and close to the UK average (41%).
Softening domestic demand is reflected in the proportion of companies in the capital citing customer demand and competition in the marketplace as growing concerns, almost one in three (30%) companies reported each of these issues in Q4 2024.
Labour market
Businesses in the region increased their staffing levels in line with the previous quarter, reporting employment growth of 1.6%, equaling the regional historical average and broadly in line with the national average (1.7%). Companies plan to marginally increase the rate of expansion over the coming year, with employment growth rising to 1.8% ‒ again close to the 1.9% rise projected nationally. The survey results suggest that skills supply issues remain less prevalent in London compared to other regions, with the availability of non-management skills reported by a smaller proportion of companies in London than in all other regions.
Salary inflation eased for the second quarter in a row in Q4 2024, as wage growth slowed to 2.9%. This was the smallest increase since Q1 2022 and the joint-lowest rise recorded in the UK. Businesses expect salary growth to moderate further over the next 12 months to 2.6%, lower than expected in most other regions but above the regional historical average (2.1%).
Input and selling prices, and profits growth
London companies reported a further slowdown in input inflation in Q4 2024. The 3.4% rise in input costs was among the lowest in the UK, and the smallest increase since Q4 2021. Businesses anticipate that input price growth will continue to ease over the next 12 months, with input costs set to increase by 2.6%, and close to the regional historical average (2.4%).
As inflationary pressures dissipated further, companies in London reduced the rate at which they raised their selling prices in Q4 2024, to 2.0%, with only businesses in the North East lifting prices at a slower rate. Companies expect growth to continue at a similar pace in the coming year, with a projected uplift of 2.1%, significantly above the regional historical average (1.2%).
Strong exports growth alongside easing inflationary pressures appears to have supported profits growth in Q4 2024, which rose to 3.7% in Q4 2024, as London companies reported sharper growth than almost all UK regions. Businesses in the region expect this strong performance to continue over the next 12 months, with growth set to rise by 5.3%, above the national projection (5.0%), and further widening the gap to the 3.4% historical average.
Investment
After successive rises in the previous two quarters, businesses in London eased their capital expenditure growth to 2.4%, down from 3.1% in the previous quarter. Even with this slowdown, investment growth was still marginally above the historical average (2.2%). However, in the coming year, businesses plan to moderate their investment growth further, with a projected uplift of just 1.9%, close to the increase expected UK-wide (1.8%).
R&D budgets followed a similar trajectory, as growth eased to 1.6% in Q4 2024, marginally below the historical average (1.7%). Businesses plan to scale back R&D growth further to 1.4% in the year ahead, in line with the UK projection (1.4%).