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Economic Insight

ICAEW Business Confidence Monitor (BCM): London

Q4: Business sentiment in London remains steady

The latest national Business Confidence Monitor (BCM) for Q4 2023 shows a slight shift in sentiment within the quarter. However, the quarter-on-quarter improvement in sentiment is marginal, remaining broadly steady at a similar level over the last few quarters. Overall confidence continues to fall short of the pre-pandemic average.

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 17 October to 15 December 2023.

  • Business confidence has changed little compared to the previous quarter and aligns closely with the UK average, but is somewhat lower than the capital’s historical norm.
  • Domestic sales growth eased for the sixth consecutive quarter, while exports fell more considerably. Companies anticipate faster rates of increase for both in the next 12 months.
  • Input price inflation has eased and is slower than most parts of the UK and is expected to ease further. Salaries continue to grow at a similar rate to the previous quarter, but are expected to moderate.
  • Selling price inflation fell sharply and is among the smaller increases across the UK, with businesses predicting this trend to continue.
  • Financial challenges are prominent in London, particularly those related to bank charges, late payments and access to capital. But regulatory requirements are the most widespread growing challenge, followed by customer demand, while staff turnover remains a prominent concern.
  • Investment underperformance continued as growth in capital spending remains at the rate seen in the previous quarter, while increases in R&D budgets have been broadly stable in recent quarters. Slower rates of expansion are expected for both in the next 12 months.

Business confidence in London

Sentiment in London remained broadly stable in Q4 2023, with the Business Confidence Index at +4.9, up marginally from +3.7 in the previous quarter. While companies are almost as optimistic as the UK (+4.2), confidence in the capital is somewhat weaker by historical standards. High interest rates and other financial challenges are likely to be weighing on sentiment.  

Domestic sales and exports growth

Domestic sales increased in London in the year to Q4 2023, but with annual growth of 3.2%, the rate has eased for its sixth consecutive quarter. Companies are more optimistic about prospects over the next 12 months and expect the rate of growth to accelerate to 4.3%. While this is ahead of London’s historical average (3.0%), it is among the slower rates predicted across the UK.

In comparison, growth in exports sales has fallen more sharply to 2.1% in Q4 2023. While this aligns with the national rate, it is notably below the historical average for London (3.5%). Companies do, however, predict a jump in the pace of expansion to 3.9% in the year ahead.

Business challenges

Financial challenges are particularly concerning for businesses in London given the size of the capital’s financial sector. More than one in five businesses report bank charges as a growing issue in Q4 2023 and this has been on a rising trend since mid-2021. A similar proportion also reported the tax burden as an increasing source of difficulty, while 27% of businesses flag access to capital. Indeed, access to capital is a more prevalent issue in London than elsewhere in the UK and has also been trending upwards over recent quarters.

But regulatory requirements, cited by 40% of businesses, are the most widespread growing challenge in London and are hovering around the historical norm for the capital. It is followed by customer demand (35%) and, although it has eased in recent quarters, staff turnover (28%), remains a prominent concern.  

Labour market

Annual employment growth in London continues trending down, consistent with the trajectory seen over recent quarters, but the rate of labour force expansion has eased more markedly in the year to Q4 2023 compared to the previous quarter. Running at 0.8% in Q4 2023, it is half the historical pace achieved in the capital and slower than any other nation or region in the UK. Businesses expect to increase employment by 1.5% over the next 12 months, broadly matching London’s historical average.

Salaries in London are rising at a similar rate to the previous quarter, unlike most of the UK which have seen pay growth ease. Still, salary growth is among the slowest in the UK but at an annual rate of 3.6% year-on-year in Q4 2023, is high by the capital’s historical standards. In the next 12 months, companies expect the rate to moderate further, to 3.0%. This is joint-slowest, matching the predicted rate for the West Midlands and South East.

Input price, selling prices and profits growth

Input prices in London continue to rise, however the rate has softened for the second consecutive quarter. But at an annual rate of 5% in Q4 2023, it is slower than most parts of the UK, and possibly reflects the dominance of the service sector in the capital’s economy, which is less exposed to volatility in commodity prices. That said, the rate remains high and is more than twice the pace of London’s historical norm (2.3%). Although businesses do anticipate it to ease considerably over the next 12 months, to 2.6%, and indeed, it is the slowest predicted rate of uplift across the UK.

Selling price inflation fell more sharply to 2.5% year-on-year in Q4 2023, down from the historic high reported in the previous quarter. While this performance remains above the historical average, it is among the slowest rates in the UK. Companies anticipate the rate to moderate further to 2.0% in the year ahead. Indeed, London businesses predict the lowest rates among the nations and regions of the UK.

The net result is that profits growth has fallen to 0.9% in the year to Q4 2023, the weakest performance across the UK. However, companies in London forecast that profits growth will accelerate in the next 12 months, reaching 4.2%.


Growth in capital investment spending in London has been trending down since mid-2021 and is running at 1.7% in the year to Q4 2023, in line with the previous quarter. While this is similar to the UK average rate, it is relatively low by the capital’s historical standards (2.2%). Various financial challenges and high interest rates help to explain why growth has been restrained. Businesses expect the rate of growth to soften further, to 1.4%, in the year ahead.

Annual growth in R&D budgets has been largely stable in recent quarters, standing at 2.1% in Q4 2023, but businesses expect a marked slowdown in the coming 12 months (1.2%).

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