Tuesday 4 October 2022
The findings from the Q3 2022 survey, which interviewed 501 business leaders in London between 4 August and 1 September 2022, reinforced the difficulties businesses are facing in the worst economic climate seen in decades. Business confidence continued to wane over the third quarter of 2022, with weaker domestic sales, lower cashflow and high cost pressures fostering a pessimism among businesses not seen since the height of the pandemic.
Unsurprisingly, external headwinds including the threat of a recession, the war in Ukraine and the cost-of-living crisis have resulted in a decidedly pessimistic economic outlook in Q3. Two thirds (66%) of companies expect the UK’s economic growth to worsen over the next 12 months and just 13% of firms believe the UK’s economy will improve during the next year, down from 19% in Q2. A third (32%) of companies now think their own profitability will worsen over the coming 12 months, up from 26% in Q2, and pessimism in overall company economic prospects dropped to the lowest level since before 2018.
The harsh realities of the cost of doing business crisis have become abundantly clear. Three quarters (74%) of firms reported that energy costs rose in Q3, while fuel costs rose for two-thirds (69%) of London firms during the same period. At the same time, cashflow for London businesses took a notable dip in Q3, with a third (34%) of companies reporting that their cashflow worsened as the net balance for cashflow fell 4 points to -14. The cost of borrowing remains high, with 39% of businesses reporting an increase in borrowing costs. This is particularly concerning due to the additional debt businesses took on to offset the worst of the pandemic.
Richard Burge, Chief Executive of London Chamber of Commerce and Industry (LCCI), said: “With rising raw material costs, lower cashflow and an uncertain geopolitical landscape, it is unsurprising that businesses are less confident than they were in Q2. The latest Capital 500 survey provides us with stark insight into an economy lacking the safety net of consistent, long-term policy. Fortunately, since this survey was undertaken the Government has introduced the business energy price cap and announced the reversal of planned tax rises. As the precursor to a long-term, credible economic plan, it is our hope that these measures will come some way to restoring business confidence in Q4 and unleashing the economic potential of London that will help drive forward the UK economy.”
Key findings from the Q3 2022 Quarterly Economic Survey:
Prior to the Government’s fiscal announcement, businesses were reporting high and rising energy costs:
- Three-quarters (74%) of firms said energy costs rose in Q3, down slightly from 77% in Q2 but still the second-highest reading since the Capital 500 began in 2014
- High living costs were also forcing businesses to have to raise wages to attract and keep talent, with 72% of firms who are trying to recruit saying that pressure from employees to raise wages had increased in Q3
Business confidence continued to drop amidst unfavourable trading conditions:
- With the net balances for both net domestic and export sales dropping to -11 and -8 in Q3 respectively, a third (32%) of businesses thought that their profitability would worsen over the coming 12 months
- The net balance for overall company prospects fell to -12 points
- 67% of micro firms – those most at risk from unfavourable trading conditions – thought that the UK’s economy would get worse over the next 12 months
Cashflow and exports fell:
- A third of companies (34%) reported that their cashflow worsened during Q3 of 2022
- Businesses struggled to borrow to cover reductions in earnings, with 39% of businesses reporting an increase in borrowing costs
- In Q3 of 2022, just 4% of London businesses reporting an increase in export sales which in the past have counteracted low domestic sales
Read the full report here.
ENDS