Business confidence at record low for Starmer government as the Employment Rights Act hammers hiring
Tuesday 13 January 2026
A punitive Employment Rights Act and Autumn Budget have seen London’s business confidence drop to its lowest level under the Labour government, according to the London Chamber of Commerce and Industry’s latest Quarterly Economic Survey of the capital’s business leaders.
Just a quarter (25%) of London businesses surveyed expect the capital’s economy to improve in 2026, with favourable expectations for the UK’s economy even lower at 23%. These figures represent the weakest economic outlook under Keir Starmer and Rachel Reeve’s stewardship of the economy and the lowest levels since 2023, indicating businesses’ declining confidence in the Government’s ability to deliver growth.
Falling economic and business confidence has been matched by a growing reluctance to hire new staff. Just a quarter (25%) of London’s businesses engaged in recruitment activity in Q4, down from over a third (34%) just six months ago in Q2. This more cautious approach to hiring comes amidst tighter regulation from the Government’s Employment Rights Act. Guaranteed hours contracts, though well-intentioned, threaten to undermine the flexibility that some firms and workers rely on, and expanded sick pay and unfair dismissal rights making employers less willing to take a chance on new employees for fear of increased costs and potential litigation.
Over half of business owners expect to have to raise prices to meet rising business costs, with 53% of London businesses anticipating a rise in the price of their goods and services over the next quarter, compared to just 44% in Q3. These anticipated rises are adding further pressure to London’s businesses which are already threatened by planned increases to the National Living Wage and National Minimum Wage and proposals for a new tourist tax on the capital’s competitiveness, as revealed by the Chancellor in November.
Investment shows a similarly concerning picture. The share of London businesses reporting increased plant and equipment investment fell sharply in Q4 to 18%, down from 25% in Q3. This decline has been driven primarily by London’s micro businesses, 15% of which reported decreased investment, pointing to ongoing vulnerabilities for smaller firms operating in the capital.
Against this backdrop of concern, strengthened export activity offers a thin silver lining. The percentage of London businesses reporting an increase in export sales revenue rose to 17% in Q4, up by 5ppts compared with Q3. However, the share of firms reporting an increase in export orders remained unchanged from last quarter at 12%, indicating that this growth in revenue may simply reflect the fulfilment of existing contracts rather than any sustained expansion in demand.
Commenting on the findings of the report, Karim Fatehi OBE, Chief Executive Officer of the London Chamber of Commerce and Industry (LCCI) said:
“Record low business confidence under this government is bad news for the Prime Minister, bad news for the economy, and bad news for the country. There is no economic growth unless businesses have the stability and confidence they need to take risks, invest, hire and expand.
At the end of a tough year London businesses needed certainty from the Budget after last year’s tax rises but the only certainty they received was higher costs. Rather than making tough decisions on public spending, the Chancellor shifted the burden onto businesses and the public.
This was followed swiftly by the Employment Rights Act receiving Royal Assent after only modest, albeit welcome, changes to make it more workable for businesses. Employment protections are vital but the balance of power has tipped too far the other way and employers are increasingly reluctant to hire as they face greater costs and risks.
The government’s new year’s resolution for 2026 must be to listen to businesses- the job-creators, taxpayers, and innovators we’re relying on to rebuild the economy. Stop weighing them down with increased costs and regulation, and give them the confidence they need to grow.”
Other key findings:
Business Confidence
- Business confidence weakened noticeably compared to Q3, falling significantly below levels seen in 2024.
- The net balance for overall company prospects fell to +4 in Q4 (down from +16 in Q3), the lowest level since Q1 2023.
- Profitability expectations also weakened, albeit to a lesser extent, falling to +26 (down from +31 in Q3).
UK Economic Outlook
- Confidence in the wider UK economy dropped sharply.
- The net balance decreased from -4 in Q3 to -20 in Q4.
- Declines in sentiment towards London’s economy were even steeper, with the net balance falling from +4 to -15.
Business Costs and Price Pressures
- Companies reported elevated costs, with larger firms experiencing the most pressure.
- The share of firms reporting a rise in energy costs remained steady at 61% (unchanged from Q3), though large firms suffered more, with 70% reporting higher fuel costs (up from 64% in Q3).
- While the total share of businesses reporting higher borrowing costs rose to 35% (up from 31% in Q3), larger firms were 14ppts more likely to report higher costs than micro businesses (48% vs 34%).
Labour Market
- Labour Market conditions remained broadly stable with headline indicators signalling that restraint will continue.
- The net employment dropped marginally but remained positive, falling to +1 in Q4 (down from +2 in Q3).
- The balance of firms expecting to increase the size of their workforce fell to +24 (down from +28 in Q3).
Recruitment and Training
- Recruitment and training activity softened in Q4, with firms showing greater caution.
- The net balance of firms investing in training fell to +11 (down from +16 in Q3) but remained steady on an annual basis.
- Apprenticeship use rose to 13%, the highest level recorded in an LCCI survey.
Cashflow
- Cashflow conditions weakened, although at a notably shallower rate than earlier in the year.
- The cashflow net balance fell to -2 (down from +4 in Q3) but remains significantly higher than Q1 when this dropped to -12.
- Firm size remained a key cashflow differentiator, with 43% of larger firms reporting increases in Q4, compared to 24% of micro businesses.
ENDS
Notes to Editors
- The London Quarterly Economic Survey is produced by the London Chamber of Commerce and Industry. It forms part of the UK’s largest and longest-running independent business survey, coordinated nationally by the British Chambers of Commerce.
- This quarter’s fieldwork was conducted by Savanta between 17 October and 15 December 2025. A total of 504 London business leaders were surveyed, with data weighted to reflect the capital’s business population by size and broad industry sector. Savanta is a member of the British Polling Council and conducts its work in line with its regulations. Full data tables are available at www.savanta.com.
- The net balance figures indicate the percentage of firms that reported an increase minus the percentage that reported a decrease. Two categories are used for business size segmentation: micro-businesses with fewer than 10 employees (including sole traders) and larger (small, medium, and large) businesses with 10 or more employees. Any data reproduced from the report must be fully referenced.
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