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ICAEW Business Confidence Monitor (BCM): London

Q2 2019: Company confidence negative, amid slowing sales and ongoing uncertainty

Confidence for companies in London remains in negative territory in Q2 2019. Broader Brexit concerns as well as difficulties in the important Retail and Property sectors may be supressing sentiment. Businesses are also reporting muted sales and profits growth. Reflecting these developments, companies plan to moderate investment growth over the next 12 months.

Business confidence trend in London

The Business Confidence Index for London remains in negative territory, standing at -13.0 in Q2 2019. Brexit uncertainty continues to be a concern. Difficult conditions in the Property and Retail & Wholesale sectors, both of which are prominent within the capital, may also be weighing down business confidence. 

Domestic sales and exports

Subdued sales growth could also be a source of weak business confidence. Indeed, domestic sales increases of 2.8% year-on-year is broadly in line with a year ago (2.7%) and has now been below the national average for each of the last six quarters. As well as this, export growth has been on a downward trend over the past year, slowing from 4.6% in Q2 2018 to just 2.7% in Q2 2019, possibly reflecting the economic slowdown in the eurozone.

Selling prices and profits

Furthermore, weaker sales growth may be putting downward pressure on selling prices. In the year to Q2 2019, selling prices rose by just 1.1%, slower than input prices (1.7%), total wages (2.5%) or inputs from abroad (2.8%). Reflecting these factors, the pace of profits growth is notably weaker than a year ago, at 2.3% in Q2 2019 compared to 4.1% a year ago.   

Business challenges 

Companies based in London are also facing several challenges. Regulatory requirements are a growing issue for 50% of businesses, compared to 46% nationally. And the availability of non-management skills is a pressing concern for 21% of companies, up from the 14% reported a year ago. The latter may reflect increasing tightness in the London labour market. The latest ONS Labour Force Survey data give an unemployment rate of 4.4% in the three months to March 2019, significantly below the historical average for the capital (at 8.3% between 1992 and 2019).  This may also help to explain the uptick in total wages growth in Q2 2019.  


That said, companies in London have increased their investment expenditure. Capital investment growth of 2.3% is in line with the historical average, while a rise in Research & Development (R&D) budgets of 3.3% is markedly faster than the historical norm for London. Growth across both types of investment is also outpacing their respective national averages. And staff development spending is rising by 1.8% in Q2 2019, up from 1.1% in the year before. 

Healthy investment growth could partially reflect increased spending within the important financial services sector. Indeed, capital investment and R&D budgets in Banking, Finance & Insurance are rising by 3.2% and 2.8% year-on-year in Q2 2019 (up from 2.6% and 1.7% a year ago) with companies in the sector attempting to streamline systems and lower their operational costs in the face of increased competition.  

Prospects for the next 12 months

Looking ahead, companies project that exports, domestic sales and profits will all expand at faster rates over the next 12 months − at 4.3%, 3.7% and 3.6% respectively. However, businesses are set to be more restrained in their investment spending, with companies planning to moderate growth in capital investment and R&D spending in the year ahead, to 1.9% and 2.3%.