Q3: London’s business confidence improves from the previous quarter but remains in negative territory.
The latest national Business Confidence Monitor (BCM) shows that business sentiment deteriorated further into negative territory in Q3 2025. This increased pessimism is underpinned by elevated concern over the tax burden, as well as above-average inflation and weak domestic and export sales growth eroding businesses’ profit margins.
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 July to 24 September 2025.
- Sentiment in London improved to -4.9 in Q3 2025, climbing above the UK score, but remains below the region’s historical norm.
- The tax burden continues to be the most prevalent challenge reported by London companies, with regulatory concerns also reaching a six-year high.
- Domestic sales growth is expected to accelerate and continue to outperform the UK, while businesses anticipate exports growth will remain resilient.
- Input price and wage inflation are projected to soften in the year ahead and rise at a similar pace to the UK average.
- Annual profits growth slowed in London but companies in the capital project a notable uplift in the year ahead.
- Businesses in London expect stronger employment growth than the national average over the coming year.
- The outlook for capital investment and R&D budget growth in London is stronger than most parts of the UK.
Business confidence in London
Following four consecutive quarterly declines, business sentiment in London improved slightly in Q3 2025, but remained in negative territory. The Business Confidence Index for London increased from -6.7 in the previous quarter to -4.9, placing the capital above the national average (-7.3) but still significantly down on the region’s historical average of +5.6.
London’s service-led economy left it less exposed to the US “Liberation Day” tariffs and, with uncertainty in the global trading environment easing this quarter, the capital has been able to maintain relatively solid exports growth in the year to Q3 2025. Domestic sales growth has largely held up amid the increase in labour costs following April’s rise in employers’ National Insurance Contributions, which contributed to increased reports about the tax burden, with the forthcoming government Budget in November also a likely growing concern for London’s businesses. Meanwhile, the widely reported slowdown in London’s housebuilding sector, linked to the Building Safety Act, will also be weighing on confidence.
Domestic sales and exports growth
Annual domestic sales growth eased slightly from the previous quarter, slowing to 3.7% in the year to Q3 2025 from 4.0% in Q2 2025. Despite this modest slowdown, this expansion was still above both the region’s historical and the national average, at 3.0%. Companies in the capital expect domestic sales growth will improve over the year ahead, with a projected rise of 4.4%, with London set to continue to outperform the 4.0% rise predicted nationally. The above-average expectations of IT & Communications and Banking, Finance & Insurance businesses that are prominent in London, likely underpin the relatively strong outlook in the region.
The capital’s larger concentration of service-based sectors also meant it was relatively less exposed to the increased uncertainty in the global trading environment over recent months, with an uptick in exports sales growth reported in the year to Q3 2025, to 3.5%. This increase matched the region’s historical average but is significantly above the 2.4% recorded nationally. Over the coming year, companies in London anticipate that exports growth will continue on its current trajectory, rising by 3.5%, broadly in line with the rate forecast across the UK (3.6%).
Business challenges
London businesses are still adapting to April’s uplift in employer’s National Insurance Contributions and the proportion of businesses citing the tax burden as a rising challenge in the year to Q3 2025 was unchanged from the historical high set in the previous quarter, at 57%, close to the UK-wide average (60%). The tax burden remained the most prevalent challenge for London-based companies at nearly three times the historical regional average (20%).
Meanwhile, concerns about regulatory requirements remain common for London businesses as the proportion of companies citing the issue increased marginally from the previous quarter, reaching a six-year high of 49% in Q3 2025. The capital has a large concentration of businesses operating in the highly regulated Banking, Finance & Insurance sector. In addition, the Building Safety Act is impacting businesses in the Construction sector, as it continues to compound the barriers to building homes in London. Meanwhile, the Employment Rights Bill and the Renter’s Reform Bill are likely to cause disruption to standard operating procedures for Retail & Wholesale and Property sectors once they complete their passage into law.
At the same time, customer demand (41%) and competition in the marketplace (36%) remain prominent issues for London companies, with the former reaching its highest proportion of citations in over four years.
Labour market
Companies in London reduced the pace at which they increased their staff levels in the year to Q3 2025, to 1.7% as they continue to cope with April’s uplift in employers’ National Insurance Contributions. However, this growth was still among the sharpest increases of any UK region, at nearly double the 0.9% rise recorded across the UK and only behind Scotland’s rate (2.2%). Businesses in the capital plan to raise employment levels at a similar pace over the coming year, with an expansion of 1.6% anticipated, matching the region’s historical norm and among the fastest rates forecast in the UK.
London businesses reported the joint-lowest annual wage growth in the UK in Q3 2025, with growth of 2.7%, with salaries rising more slowly than the 3.1% rise recorded for the UK. Annual wage inflation in London is expected to continue at a similar pace over the coming year, with businesses anticipating an uplift of 2.6%, marginally below the rise projected nationally (2.7%) but considerably above the region’s historical average (2.1%).
Input prices, selling prices and profits growth
Companies in the capital reported that annual input price inflation eased for the second consecutive quarter in Q3 2025, but the rate remains historically high. Over the year, input costs increased by 3.7%, closely tracking the UK average of 3.8% but significantly stronger than the region’s historical average of 2.4%. Looking ahead, businesses in London expect further moderation to input cost inflation, with a rise of 2.9% anticipated, similar to the UK projection (2.8%).
Selling price inflation declined sharply in the capital in 2024 but has been relatively stable so far in 2025. Annual selling prices increased by 1.9% in Q3 2025, marginally higher than reported in Q2 2025 (1.8%). Businesses in London plan to raise their selling prices at the same rate over the next year, matching the rise projected across the UK and above the regional historical average (1.2%).
Despite the relative resilience of domestic sales and exports growth, persistently high inflation and increases in the tax burden have eroded the profit margins of London businesses in the year to Q3 2025. As a result, annual profits growth eased to 2.8% in Q3 2025, widening the gap to the region’s 3.4% historical average but still outpacing the national growth rate of 2.3%. Over the next 12 months, London companies anticipate a significant improvement in profits growth, with a forecast rise of 4.5% compared to 4.1% projected nationally.
Investment
Companies in London reported robust annual capital investment growth in Q3 2025, despite a slight moderation to 3.0%. This growth is still notably above the region’s 2.2% historical average and higher than recorded in all regions apart from Scotland. Businesses in the capital plan to moderate growth further over the coming year. However, the anticipated growth rate of 2.6% is the sharpest projected rise of any UK region.
London businesses reported a 2.9% uplift in their R&D budgets in the year to Q3 2025, the strongest expansion in six years and significantly exceeding the historical average (1.7%). While businesses expect to slow the rate of R&D growth to 2.4% over the coming year, the anticipated rate of expansion is still one of the strongest projected increases in the UK and significantly higher than the national growth forecast of 1.6%.