Q3: Confidence in London improves but remains in negative territory as geopolitical risk continues to weigh on businesses.
- London’s business confidence improved to -2.3 in Q3 but is slightly weaker than the UK average and remained below its historical norm.
- Domestic sales and exports outpaced national rates, and businesses expect further improvements in the coming year.
- Geopolitical risk remained the most widely cited growing challenge and was reported by a larger share of London businesses than nationally.
- Jobs and pay growth slowed, while recruitment expectations improved and skills concerns remained subdued.
- Input price and selling price inflation both eased, and profits growth slowed but remained above the national rate.
- Capital investment and R&D budget growth both slowed, and businesses plan further moderation over the next 12 months.
Business confidence in London
Business sentiment in London improved in Q3 2026, with the Business Confidence Index rising from -11.9 in Q2 2026 to -2.3. However, the score remained in negative territory for the second consecutive quarter and below the region's historical norm (+5.1) for the seventh successive quarter. Having outperformed the UK in Q2, confidence in London dipped slightly below the national average (-0.5) this quarter.
As elsewhere in the UK, stronger sentiment reflected economic resilience despite disruption from the US–Iran conflict. London businesses reported robust domestic sales, strong exports and easing input cost pressures. Recoveries in IT & Communications and Business Services also supported confidence. However, geopolitical risk remains the leading concern, and firms have lowered their sales and profit expectations. Renewed hostilities in the Middle East and higher energy prices pose further risks.
Domestic sales and exports growth
Businesses in London reported annual domestic sales growth of 4.4% in Q3 2026, broadly steady compared to the previous quarter and comfortably ahead of both the UK average (3.6%) and the region's historical norm (3.1%). The capital's large services base, including IT & Communications, where sentiment rose markedly nationally this quarter, likely underpinned this performance. Looking ahead, companies have tempered their expectations, anticipating growth of 4.3% over the next 12 months, but this view is consistent with the national projection and above the historical norm.
Annual exports growth in London eased slightly to 3.6% in Q3 2026 but remained above the region's historical norm (3.5%) and outperformed the UK average (2.8%). Businesses in the capital are more upbeat about external trade than last quarter and expect exports growth to pick up to 4.6% over the coming year, ahead of the UK forecast (4.1%).
Business challenges
Geopolitical risk remained the leading concern for London businesses in Q3 2026, amid continuing US–Iran tensions and disruption in the Strait of Hormuz. Although the proportion reporting it as a growing challenge fell from the previous quarter, London’s 64% reading was among the highest in the UK and exceeded the national average of 58%. Energy costs were cited by 47% of businesses, also down on last quarter but slightly above the UK figure of 45%. Transport problems were reported by 17%, compared with the historic benchmark of 13%.
Labour costs ranked second, cited by 48% of businesses in the capital. This proportion declined from the previous quarter and remained below the UK average of 53%. Regulatory requirements were a concern for 45% of companies, broadly matching both London’s long-run level of 44% and the national figure of 46%. Concern about the tax burden eased further to 39%, below the 41% reported nationally but well above London’s historical norm of 22%.
Competition in the marketplace was cited by 39% of businesses, exceeding the UK average of 34% and London’s historical average (37%). Access to capital was also reported more widely in the capital than nationally, at 17% and 13%, respectively. By contrast, concern about customer demand eased to 30%, below both the UK figure of 36% and London’s historical average level of 38%, consistent with the capital’s robust sales performance. Reports of late payments also fell from 24% in Q2 2026 to 19% in Q3, matching the national average and close to London’s norm (20%).
Labour market
Anecdotal evidence from ICAEW members in the region suggests that due to the increase in labour costs, insurance and the pressures associated with regulatory compliance, businesses in the capital are reassessing recruitment and skills needs while investing selectively in technology. This is reflected in figures recorded in BCM, with jobs growth in London easing to 1.0% in Q3 2026, lagging the region's historical norm (1.6%). Businesses in the capital have a comparable outlook to the national average (1.5%) and plan to lift headcount growth to 1.6% over the next 12 months.
Salary growth also slowed in the capital, with businesses reporting that pay increased by 2.7% in the year to Q3 2026, which is just below the national average (2.8%). Companies expect pay growth to moderate further to 2.5% over the year ahead, close to the national projection (2.6%) but above its norm (2.2%).
With labour demand cooling, concerns about the availability of skills remained subdued. Non-management skills (14%) and management skills (9%) were both cited less widely than their historical averages (15% and 13%, respectively).
Input and selling prices, and profits growth
London businesses reported that annual input price inflation eased to 3.7% in Q3 2026, slightly below the UK average (3.9%) but well above the region's historical norm (2.5%). Companies expect input price growth to slow to 2.9% over the next 12 months, matching the national projection, although renewed increases in oil and gas prices in September pose upside risks.
Businesses in the capital also moderated the pace at which they raised their selling prices, to 2.0% in the year to Q3 2026, below the 2.2% rate recorded nationally but still above the region's historical average (1.3%). London companies plan to raise their prices by 1.8% over the coming year, less than the UK projection (2.1%).
Annual profits growth in London slowed to 3.6% in Q3 2026 but remained above the UK rate of 3.3% and the capital’s historical norm of 3.4%. Businesses expect growth to strengthen and reach 4.3% over the coming year, but their projection trails the national forecast of 4.5%. Their outlook is also weaker than last quarter, consistent with softer domestic sales expectations.
Capital investment and R&D
Annual capital investment growth in London eased to 2.1% in Q3 2026, close to the region's historical norm (2.2%) and slightly below the UK average (2.3%). With uncertainty elevated, businesses plan to slow investment growth further to 1.9% over the next 12 months, marginally below the national projection (2.0%) and the historical norm.
Annual R&D budget growth in London also eased to 2.2% in Q3 2026, broadly in line with the UK average (2.3%) and above the region's historical norm (1.8%). Businesses intend to expand R&D budgets by 1.8% over the coming year, matching the historical norm and close to the national forecast (1.9%).
UK results
The UK Business Confidence Index rebounded to -0.5, from -14.6 in Q2, but remained negative for a seventh consecutive quarter. Current sales and profits proved resilient, but firms downgraded their expectations for both over the next 12 months. Geopolitical risk remained the leading challenge, while elevated input and labour costs continued to put pressure on margins. Energy costs, regulations and the tax burden remain significant challenges. The rebound was broad but uneven: confidence rose in every sector, IT & Communications was the most positive, while Property and Construction remained deeply negative.
The latest quarterly findings are based on the period 13 July to 21 September 2026.