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Confidence springs back in capital

London has experienced a significant increase in business confidence this quarter, rising to +3.4 in Q2 2018 compared to -12 in Q1, according to ICAEW’s latest Business Confidence Monitor.

"BCM_Q3_2013"

July 2018

Although not as high as the UK’s overall figure of +7% this quarter – the highest level for two years - the results show a strong return of optimism for London.

As Michael Izza, ICAEW Chief Executive, says: “There is definitely a sense of ‘a joy of spring’ in this quarter’s figures with confidence rising across most regions and sectors. Export and domestic sales growth are both improving and businesses are controlling price inflation and labour costs. As business leaders seek to drive their organisations forward, they are increasingly struggling with a growing tide of regulation with further legislation to come.

Key findings of BCM Q2 for London:

  • Rising concern about staff turnover is becoming more widespread in London. 10% of companies in the region expressed growing concern over the issue in Q2 2017 and this has risen to 26% in the current quarter. Such concerns are likely to have been amplified by the historically low unemployment rate (4.8%) in the capital, making the replacement of workers more difficult for London businesses than in recent years.
  • Despite improvements in their financial performance, businesses remain cautious with regards to investment in staff development and Research & Development. Budgets for these are growing by 1.1% and 2.0%, respectively, in Q2 2018, both below the UK averages. This may reflect the particular importance of Brexit to the capital, and the inevitable uncertainty amidst ongoing Brexit negotiations.
  • Regulatory requirements also continue to be a major business issue, with 53% of companies expressing rising concern. Factors that may be particularly affecting London’s businesses include GDPR and the requirements for public disclosure of relative rates of pay within companies.
  • Growth in sales has provided a basis for this improved sentiment. Exports are now growing at 4.6% year-on-year while domestic sales are increasing by 2.7% in Q2 2018. These compare with growth in the previous year of 3.0% and 2.5%, respectively.
  • Input price inflation has varied very little in the last year and is running at 2.1% in Q2 2018. This, coupled with rising sales, has helped support profit growth of 4.1%; broadly on a par with the UK average and better than the 2.4% reported a year ago. 

However, Izza issued a warning, saying: “Long term investment, although improving, is still modest and given the lack of certainty about the future, businesses are more focussed on the ‘here and now’. Confidence is very fragile and the upward trend could be derailed by any setback in the economic outlook.”

The ICAEW Business Confidence Monitor can be found at: www.icaew.com/bcm

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