The latest national Business Confidence Monitor (BCM) for Q3 2024 shows a slight drop in sentiment. However, confidence remains high as businesses continue to expect sales and profits growth to improve significantly in the year ahead.
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 15 July to 20 September 2024.
- London’s Business Confidence Index, at +16.9, was broadly comparable with the reading of +17.1 from the previous quarter and ahead of the UK average.
- Sentiment was supported by improved domestic sales growth and optimism about further expansion in the coming 12 months.
- London businesses reported the joint-highest exports growth in Q3 2024 alongside the South East and expect that position to be maintained next year.
- Businesses also expect the growth in input price inflation to slow considerably and salary pressures to ease further.
- Profits growth remained ahead of the UK average and companies predict faster growth next year.
- Regulations remain the primary growing challenge in London, but concern about the tax burden rose ahead of the autumn Budget and customer demand issues remain prevalent.
- Capital investment rose sharply in Q3 2024 but business plans for capital investment and R&D budgets growth next year are modest.
Business confidence in London
Sentiment largely held firm in London as the region avoided the more marked decline in confidence seen nationally and in some other regions. The Business Confidence Index stood at +16.9, only marginally down from +17.1 in the previous quarter, and remains ahead of the UK average (+14.4) and the historical norm for the region (+6.0). The result reflects the gradual improvement in domestic sales growth and the rebound in exports growth reported by businesses in recent quarters.
Domestic sales and exports growth
Domestic sales growth increased again in Q3 2024, reaching 4.0% in the latest survey, up from 3.1% in the previous quarter and widening the gap with the historical average (3.0%). Businesses expect conditions to improve further, anticipating domestic sales to grow by 5.4% in the next 12 months, and ahead of the national projection (5.1%).
Exports growth increased for the third successive quarter, reaching 3.5% and moving ahead of the regional norm (3.4%). In fact, alongside the South East, London reported the strongest exports performance in Q3 2024. Businesses in London expect to maintain that position, forecasting growth of 5.4% for the year ahead, the joint-highest anticipated growth rate, with companies in the South East anticipating the same rate of growth. Some of London’s most significant sectors are the most optimistic about exports growth for the year ahead, including Property, IT & Communications and Banking, Finance & Insurance.
Business challenges
Regulatory requirements remain the chief growing challenge for businesses in London, reported by 40% in Q3 2024, close to the historical average (43%). This is partly explained by the presence of the highly-regulated Banking, Finance & Insurance sector in the region. The proportion of businesses in the sector nationally reporting regulations as a growing challenge increased to 61% in the latest quarter, ahead of the introduction of new payments regulation to delay suspected fraudulent transactions and ongoing uncertainty surrounding the implementation of Basel 3.1.
Customer demand also remains a prominent issue in the region and was reported by 34% of businesses again this quarter, matching Q2 2024. It remains below its historical average (38%), likely reflective of recent sales improvements. However, the tax burden is now the joint-second greatest concern, edging past competition in the marketplace, which is now reported by a smaller proportion of businesses and is less prevalent in London than elsewhere in the UK bar Scotland. The tax burden, on the other hand, was reported by a larger proportion of businesses this quarter as a rising challenge at 34%, only behind the East of England (37%). Most sectors reported greater concern about the tax burden this quarter and, alongside Energy, Water & Mining, it was notably higher in Business Services and Property, both significant sectors in London.
Labour market
Employment growth slowed slightly again to 1.6% in the 12 months to Q3 2024, now matching London’s historical average (1.6%). However, businesses are more optimistic about employment prospects for the year ahead and expect growth of 2.1%, matching the national average (2.1%).
Meanwhile, wage pressures eased compared to the previous quarter in London, with salaries rising by an average of 3.2% in the year to Q3 2024 after recording a slight increase in the previous quarter. Salary growth in London is below the national average of 3.6% and was only higher than the rate recorded in Wales. Businesses expect the rate to ease to 2.8% in the coming year, similar to the expectation nationally (2.9%) but ahead of the historical norm (2.1%).
The survey indicates that skills supply issues that have been rising in other regions remain of less concern to London businesses, but staff turnover was reported by 24% of London companies as a growing challenge, above the UK average (22%).
Input price, selling prices and profits growth
Input price inflation remains high in London, at 4.3% in Q3 2024, compared to the historical average of 2.4%. However, it is down on the growth reported in the previous quarter and is now broadly in line with the national average (4.2%). Companies expect the trend of easing input prices to continue, predicting that input price growth will slow to 2.5% over the coming year.
Closely tracking the trend in input prices, businesses in London decreased their selling prices at a slower rate in Q3 2024 than in the previous quarter, raising prices by 2.7% and down from 3.1% in Q2 2024. Businesses project that selling prices will rise by 2.3% next year, nearly twice the region’s historical average (1.2%).
London’s businesses again reported profits growth of 3.3% in Q3 2024, matching the results from last quarter and close to the historical average (3.4%). The outcome places London ahead of the national average (2.8%), but London businesses are somewhat less optimistic about the coming year than they were in the previous quarter. While they expect profits growth of 5.0% next year, this is marginally lower than the UK-wide projection (5.1%) and considerably down on the 6.1% they predicted last quarter – likely symptomatic of the slow dissipation of cost and wage pressures impacting profits.
Investment
Capital investment in London picked up in Q3 2024, with growth rising to 3.1%, the highest it has been since Q4 2022 and outpacing all other parts of the UK. However, businesses remain pessimistic about the likely return on investment and plan to reduce growth to 1.8% over the coming 12 months, below the regional historical average (2.2%) and the national projection (1.9%).
It is a similar, though less positive, story for R&D budgets, which expanded by 1.8% in Q3 2024, marginally ahead of the historical average (1.7%). But here again, companies plan to scale back growth to 1.2% in the year ahead, consistent with the UK average (1.2%).
