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Economic Insight

ICAEW Business Confidence Monitor (BCM): London

Q4 2022: Business Confidence Index turns negative for first time in two years in London

The latest Business Confidence Monitor (BCM) shows business confidence falling further across the UK as difficult economic conditions combine with political turmoil. The latter has seriously unsettled financial markets, and although some stability has been restored, recent events are likely to result in higher interest rates, taxes and government borrowing, and lower government spending, than previously expected. This has adversely affected business sentiment.

The survey results are based on telephone interviews among ICAEW Chartered Accountants that took place between 25 July and 14 October 2022.

  • The Business Confidence Index has once again fallen in London and is now in negative territory for the first time since Q4 2020.
  • Domestic sales and export growth are both outpacing their UK averages. But domestic sales are expected to slow over the next year, while export growth is to remain broadly in line with the current rate.
  • Businesses face a host of difficulties, particularly in terms of skills availability. Staff turnover is a more widespread challenge than at any time since the survey began.
  • Challenges are not just confined to the labour market, with access to capital and regulatory problems also very prominent issues.
  • In addition, average total salaries are rising at the fastest pace in 15 years. Businesses plan to increase employee numbers sharply, something that may add more upwards pressure on wages.
  • Input costs are also rising rapidly, although not as quickly as in other UK regions. Businesses are, nonetheless, increasing selling prices at a near-record pace.
  • And while companies are increasing their spending on capital and R&D, the pace of growth across both types of investment is expected to weaken over the next year.

Business confidence in London

The Business Confidence Index for London has fallen further in Q4 2022, to -6.3. This is the first time that it has been negative for two years, although it still compares very favourably with the UK national figure of -16.9.

Domestic sales and exports growth

Sales performance in London has been healthy, although growth has softened slightly from the highs of recent quarters. Nevertheless, domestic sales are increasing by 6.1%, year-on-year, in Q4 2022, a faster rate than the UK average of 5.4%. A similar story is true for exports. A rise of 4.8% over the past 12 months is almost one percentage point faster than the UK outturn. Companies do expect the pace of domestic sales growth to ease in the year ahead, to 5.3%, while exports are projected to rise at a similar rate (4.6%) to this quarter.

Business challenges

The weakening of business sentiment is likely to reflect the range of challenges companies face. Staff turnover and the availability of non-management skills continue to be among the more widespread growing challenges, with 46% citing the former and 37% the latter. For staff turnover, this is the highest rate since the survey began in 2004. The movement of workers out of the labour market during the pandemic, as well as Brexit-induced shortages, are factors that probably underpin this.

And while the percentage of companies increasingly challenged by the availability of management skills (22%) has eased from its peak last quarter, it nonetheless remains nearly double London’s historical average.

Beyond the labour market, regulatory requirements continue to be a prominent challenge for companies in London. Indeed, 40% of companies report this in Q4 2022, making it the second most widespread issue in London, behind staff turnover. The issue is particularly prevalent nationally in Banking, Finance & Insurance, a very important sector in the capital.

Access to capital has become another widespread problem in Q4 2022. After being a relatively minor issue over the past decade, 26% of companies now cite this issue. This is by far the highest rate across all UK nations and regions. And the proportion of businesses troubled by bank charges has also come to the fore, with 14% of companies challenged in this area. The prominence of both of these issues no doubt reflects the tighter financial conditions now faced by businesses and their customers, driven by higher interest rates and increased uncertainty.

Labour market

Problems with the availability of labour help to explain why average total salaries are rising sharply. In the year to Q4 2022, salaries are increasing by 3.8%, the fastest rate of growth in more than 15 years. A similar increase of 3.4% is planned for the coming 12 months. At the same time, businesses are increasing employee numbers (3.9%) more sharply than in all other UK nations and regions. Businesses also have the strongest outlook for employment growth (2.7%) over the next year, something that may place further upwards pressure on salary growth in London.

Selling and input prices, profits growth

As well as labour costs rising, input costs are increasing markedly. Underpinned by the surge in global energy prices and ongoing supply-side disruptions, annual input price inflation in Q4 2022 is at its highest rate (4.7%) since the survey began in 2004. However, when compared to all other UK regions this rise is the slowest. The major reason for this is that London has a much smaller presence in manufacturing than other regions. Over the next 12 months, businesses expect input prices to rise a further 5.0%, which is again below the UK average.

In response to these pressures, and reflecting higher sales, companies in London have raised their selling prices to customers. In Q4 2022 these increased by 2.3%. Although this was below the record increase seen in the last quarter, it was comfortably above the region’s historical average. A very similar 2.5% increase is planned for the next 12 months, indicating that businesses do not expect cost pressures to ease any time soon.

The combination of higher sales and rising selling prices has helped to offset the cost pressure businesses face, and indeed profits growth remains in positive territory, although the pace is slowing. After seeing record rises in recent quarters, profits are now increasing at the slightly slower rate of 5.5%. A further easing is expected in the next 12 months, to 4.5%.


It is encouraging that companies are increasing their capital investment. In the year to Q4 2022, spending on capital assets increased by 3.4%, a rate that compares favourably with the UK average of 2.9%. By comparison, growth in Research & Development (R&D) budgets is slower at 2.5%, but this still marks a return to pre-pandemic rates. However, the weakness in business confidence does reveal itself through investment intentions for the next 12 months. Both capital investment and R&D budgets are expected to rise at the considerably slower rates of 1.9% and 1.4% respectively. This is a concerning trend for London businesses given the importance of both types of spending for productivity gains and enhancing competitiveness in both domestic and international markets.