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Economic Insight

ICAEW Business Confidence Monitor (BCM): London

Business Confidence Index slides further into negative territory

The latest Business Confidence Monitor (BCM) shows business confidence falling further. Difficult economic conditions continue, though there has been some easing in the political turmoil of the previous period, which seriously unsettled financial markets. As a result, some economic stability has been restored, even though September’s events have resulted in higher interest rates, taxes and government borrowing, and lower government spending. But the global economic background continues to look very challenging.

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 interviewing is continuous, the latest findings are based on the period 17 October to 16 December 2022.

  • The Business Confidence Index is significantly more negative than in the previous survey, and sits at its lowest recorded level since Q4 2020.
  • Companies are reporting faster sales than the UK averages. Both domestic sales and exports are expected to outpace those in all other parts of the UK in the year ahead.
  • However, regulatory requirements are a very widespread problem for companies in London. Access to capital is also a more prominent issue in London than in any other UK nation or region.
  • Labour market challenges are starting to ease, but remain elevated. Salaries continue to rise sharply, with growth expected to strengthen in the year ahead.
  • Annual input price inflation is running at a record rate for London, but is lower than in any other UK nation or region.
  • Selling price rises are also more modest than in the rest of the UK. Growing marketplace competition, particularly in the IT & Communications sector, may be a reason for this.
  • Businesses are increasing their investment spending, although the pace of growth is expected to moderate in the year ahead.

Business confidence in London

The Business Confidence Index has weakened for the sixth successive quarter, and is now in firmly negative territory at -23.1. This is the lowest recorded index reading since Q4 2020 at the height of the Covid pandemic. When compared to the previous survey period, the index has deteriorated more sharply than in any other UK nation or region.

Domestic sales and exports growth

Annual domestic sales growth now stands at 6.0%. Although this marks an easing from recent survey periods, the pace of growth is comfortably above London’s historical average. Exports are rising by 5.0%, which is the second fastest rate across the UK, behind only Wales, as well as the sharpest outturn in London since Q4 2008. The depreciation of sterling against other major currencies and the revival in the world economy through much of 2022 are likely to have helped lift exports. In the year ahead, companies anticipate that both domestic sales and exports growth will outpace all other UK nations and regions. The former is expected to see a year-on-year increase of 6.3%, while the latter is forecast to grow by 6.1%. 

Business challenges

The marked fall in the Business Confidence Index is likely to reflect the range of challenges London companies face. Regulatory requirements are the most widespread growing problems and, in this period, 40% of companies cite these as a pressing issue, the second highest rate across the UK, behind only Scotland. Companies in Banking, Finance & Insurance, a sector that is very important to London’s (and Scotland’s) economy, are particularly sensitive to regulatory requirements.

Access to capital is also now a very prevalent issue for London businesses. After being a relatively minor matter over the last decade, it is now cited as a growing source of difficulty by 29% of businesses. This is the highest proportion across the UK. Its prominence probably relates to the tighter financial conditions businesses now face due to banks and other financial companies being more cautious in their lending and investment, in the face of higher interest rates and the possibility of a global recession. Access to capital is particularly impacting property companies, and these tend to operate or be headquartered in London.

The availability of non-management skills and staff turnover continue to be widely reported challenges, remaining very elevated when compared to historical norms: 31% of companies cite the former, and 35% the latter, as growing sources of difficulty. However, both issues have eased from their record highs during 2022.

Labour market

With strong growth, and possibly helped by the easing of recruitment problems, staff levels are rising at a faster rate. Companies have increased their headcounts by 3.7%, comparing favourably to the UK average (3.1%). A slightly slower rise of 3.1% is expected in the year ahead, but this still stands as the second strongest outlook across the UK, behind only the East of England.

Average total salaries are rising at a near-record pace of 3.7%, partly because skill challenges still remain elevated but also because high inflation has pushed up wage claims. Wage growth is forecast to strengthen in the coming 12 months to 4.3%. With the exception of Scotland, this is the steepest rise planned in the UK.

Selling and input prices, profits growth

Businesses are also contending with a 4.7% increase in input costs. Along with the previous survey period, this is the fastest increase in London since the survey began in 2004. However, it is also the slowest rise across all UK nations and regions. This reflects the sectoral composition of London’s economy, with a much smaller presence of sectors that have been vulnerable to input price rises, notably Manufacturing & Engineering, and Energy, than other regions. Over the next 12 months, businesses expect input prices to rise by 4.9%, which is in line with the UK outlook.

Largely reflecting slower input price inflation, selling prices are rising at the slowest rate (3.1%) of any UK nation or region. And in the coming year, only a modest 2.6% increase is planned. Apart from the North West, this is the weakest expectation for selling price rises in the UK. One possible reason for this is problems that businesses in London face with respect to marketplace competition. The issue is only more prominent in the East Midlands and the North West. Companies in IT & Communications are particularly troubled in this area, and this is a sector of major importance to the capital.

The net effect of these price-cost dynamics, as well as higher sales, is that profits are increasing. A 4.4% expansion in the latest survey period is broadly in line with the UK average. Companies anticipate a further 4.4% increase in the 12 months ahead.


Businesses in London are also increasing their investment spending. Capital investment is up by 3.7%, year-on-year, while R&D budgets growth stands at 2.4%. However, the weakening of the Business Confidence Index is reflected in the investment intentions of companies over the next year. Growth in both capital investment and R&D budgets is expected to soften, to 3.1% and 1.4%, respectively. This is a concerning trend for companies in London given the importance of both types of spending for productivity gains and enhancing competitiveness in domestic and international markets.