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ICAEW Business Confidence Monitor (BCM): London

Q1 2019: Lower business confidence, with slower sales and investment growth

Business confidence in the capital is among the weakest in the UK. While Brexit uncertainty is a major factor, companies are also expressing growing concern over regulatory requirements. Businesses are also reporting more modest sales and investment growth. Although they project improvements in sales growth over the next year, their investment rates are set to remain subdued.


Business confidence trend in London

Business confidence in London remains in negative territory in Q1 2019. At -20.3, sentiment among companies in the capital has been below zero for 10 of the last 12 quarters. Uncertainty surrounding Brexit is almost certainly a key factor. With an EU withdrawal agreement not yet signed off, Brexit continues to weigh heavily on companies in London, particularly for those operating in London’s globally prominent services sector.

Business challenges

Company confidence is also probably being hampered by rising business challenges. The capital’s important business and financial services sectors are particularly sensitive to changes in regulatory requirements. And these have become are a more pressing issue for 56% of businesses in London, compared to 50% nationally.

Exports and domestic sales

Negative business confidence may also be stemming from muted sales growth. Domestic sales are rising by 2.6% in Q1 2019, compared to 3.6% a year ago. In addition, export growth has been exhibiting a downward trend in recent quarters, with Q1 representing the third successive quarter of slower growth. Indeed, the annual rate of expansion for exports is down from 4.2% in the 12 months to Q1 2018 to 2.5% in Q1 2019 – the boost from sterling’s depreciation in 2016 is fading.

Selling prices, costs and profits

Amid reduced sales growth, companies are struggling to achieve any substantial increases in selling prices. At just 0.8% year on year they continue to trail behind input price inflation, which stands at 2.4% in Q1 2019. And the combination of limited gains in selling prices and slower sales rises is impeding profits growth. Profits are rising by 2.1% in Q1 2019, comparing unfavourably with the 2.9% expansion achieved a year ago as well as the UK average of 2.6%. 


With weaker growth in sales and profits, along with broader Brexit concerns, London companies are constraining their rates of investment. While growth in capital investment (2.7%) is unchanged from a year ago, businesses are moderating increases in staff development and Research & Development budgets to just 1.3% and 0.9% respectively. Growth in the latter is among the weakest in the UK. 

Prospects for the next 12 months

Companies project that exports, domestic sales and profits will all expand at the faster rates of 3.4%, 3.2% and 2.8% respectively in the next 12 months. However, businesses remain cautious in terms of investment, particularly capital investment where growth is projected to slow from 2.7% in Q1 2019 to a mere 0.4% in the year to Q1 2020. If these low rates continue for a prolonged period of time, they risk damaging the capital’s longer-term outlook.