London 13 April 2023
The London Chamber of Commerce and Industry (LCCI) has today published the results of its Q1 2023 quarterly economic survey, the Capital 500, which seeks to gauge private sector performance and confidence levels among businesses of all sizes across the capital.
The latest survey, which interviewed more than 500 business leaders between 2 February and 9 March 2023, finds that over two in five London businesses (43%) think London’s economy will shrink over the next 12 months, likely driven by the persistence of suboptimal trading conditions. However, this is a marked improvement from Q4 2022, when over half (52%) of businesses felt this way, which clearly demonstrates the resilience, determination and entrepreneurialism of London businesses despite the economic headwinds facing them.
High energy costs, recruitment issues and flatlining consumer demand have all contributed to a climate of uncertainty, with a majority of businesses predicting that the UK economy will not improve in the next 12 months. Although there has been a small uptick in businesses reporting they are confident about London’s financial prospects – 25% of London businesses now expect the capital’s economy to improve over the next 12 months (up from 21% three months ago) - almost twice as many business leaders feel the economy will be worse off over the next twelve months than better off (43% vs. 25%).
Cost pressures remain a major cause for concern for many London firms during Q1 2023, who report continued struggles with rampantly high inflation and low consumer demand. Three quarters (74%) of firms said their energy costs had increased in Q1 2023, down slightly from 79% in Q4 2022. However, energy costs have by no means subsided - just 1% of businesses reported that energy costs had declined since the last quarter. Fuel costs also remained high with three-fifths (60%) of companies reporting an increase in Q1 2023, slightly down from 70% in Q4 2022. Businesses remained negative about the implications of future cost pressures, with 50% of respondents expecting the price of their goods and services to rise further over the next three months.
Pressure from labour market demands remained high during the first quarter of 2023. 47% of London businesses reported that the pressure to raise wages had increased in Q1 2023, which is the second highest rating in Capital 500 history. Only a fifth (22%) of London businesses reported that they expect their workforce size to increase over the next three months, and there was only a slight uptick in the number of micro firms (0-9 staff) who predicted a rise in employment, up to 19% from 14% in Q4 2022. Overall, labour market difficulties remained for many businesses, who struggled to hire new staff and reported wage pressures for existing staff due to macroeconomic factors.
Reacting to the findings of the report, Richard Burge, Chief Executive of London Chamber of Commerce and Industry (LCCI), said:
“The last three months have been yet another a difficult period for London’s businesses community. High energy, fuel, and domestic and labour costs, accompanied by flatlining domestic and export demand, have contributed to a bleak business landscape for our hard-pressed business community. It is no surprise that a plurality of firms remain unconvinced that London’s economy will return to growth over the next 12 months. What businesses need now is for the Government to put its weight behind a clearly prioritised, long-term, and strategic plan for UK business recovery, investment and renewal. This will encourage a return to business confidence which will unshackle London businesses and allow them to drive forward the UK’s economic recovery. Only then will we see the UK return to growth and higher levels of productivity.”
Key findings from the Q1 2023 Quarterly Economic Survey:
London businesses remained low during Q1 2023:
- The proportion of businesses who thought London’s economy would worsen decreased from 52% to 43%, but this is still nearly double the proportion who thought it would improve (25%).
- The chief concern for London business leaders remains inflation, with 73% saying it is more of a concern than in Q4 2022.
- Businesses were slightly more confident about their own profitability than not, with more than a third (36%) of firms expecting profitability to increase in the coming 12 months, compared to 31% who anticipate a decline.
- Larger firms (employing 10+ people) were more optimistic about profitability in Q1: the net balance climbed 12 points to +32, with more than half (53%) saying they think profitability will rise in the next 12 months.
- For micro firms, the net balance nudged down 1 point to +2.
Companies increased recruitment efforts but encountered difficulties hiring new staff:
- A quarter (25%) of companies said they tried to recruit in Q1 2023, a new record for the Capital 500.
- The vast majority of businesses trying to recruit reported difficulties in doing so. A record 73% of firms reported issues in recruiting in Q1, with three-quarters (76%) of micro companies (who tried to recruit) saying they encountered issues.
- The industries where difficulties were being felt most acutely were professional, scientific and technical services, and the finance, insurance and business support sectors.
Businesses were more confident in the wider labour market despite recruitment problems:
- London businesses were more positive about their workforce levels, with more than a fifth (22%) now expecting an increase in the coming three months.
- Only 6% of firms thought their workforce levels would reduce in the next three months, pushing the net balance up 8 points to +16, a joint record high.
- Half (50%) of larger companies thought their workforce size would grow over the coming three months, the highest share since the Capital 500 began: 13% expect a decline in their workforce.
- For micro firms, around one in five (19%) anticipate an increase in their employment levels in the next three months, up from 14% in Q4 2022.
Businesses continued to face enormous cost pressures:
- 74% of businesses reported that their energy costs had increased in Q1 2023, marginally down on 79% in Q4 2022.
- Three-fifths (60%) of companies reported an increase in fuel costs during Q1 2023, down from 70% in Q4 2022.
- Around half (49%) of firms said their domestic raw material costs had risen in the first three months of 2023, down from 57% in Q4 2022. For raw materials sourced internationally, two in five (41%) businesses reported an increase in costs in Q1, compared to 53% in the previous quarter.
Domestic and export demand remained largely stagnant:
- There were no significant changes in domestic demand across the first three months of 2023, with the domestic sales balance (which measures percentage increase minus percentage decrease) moving from -9 to -11 between Q4 2022 and Q1 2023.
- The proportion of firms who said export sales had risen in Q1 grew slightly from 9% to 10%, but there was also a bigger share who saw sales decline (14%, up from 11% in Q4 2022).
The full report is available to view here.
ENDS
Contact:
London Chamber Press Office
T: +44 (0)20 7203 1897
M: +44 (0)7767 110632
E: press@londonchamber.co.uk
Notes to editors:
Savanta surveyed a total of 529 London business leaders between 2 February and 9 March 2023. All data were weighted to be representative of all London businesses by company size and broad industry sector. Savanta is a member of the British Polling Council and abides by its rules. Full data tables are available at www.savanta.com.