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Early signs of recovery in London business confidence stalled by war in Iran

Wednesday 15 April 2026

Business confidence in London saw a noticeable improvement in Q1 2026, according to the London Chamber of Commerce and Industry’s latest Quarterly Economic Survey, with around half of firms (48%) anticipating a growth in turnover over the coming 12 months, up from 42% in the final quarter of 2025. However, this early progress is now at risk following the outbreak of war in Iran, which occurred after the survey’s fieldwork and has quickly introduced turmoil to the markets bringing with it uncertainty for businesses and households alike. 

Part of that earlier improvement was driven by easing cost pressure. Energy costs, a persistent concern for businesses in the capital, showed signs of stabilising with the share of firms reporting a rise in energy costs at the start of the year falling to 56% (versus 61% in the prior quarter). Escalating geopolitical tensions and disruption in the Strait of Hormuz is pushing energy prices higher again, meaning the Q2 survey will likely tell a different story for businesses. 

The Q1 survey also indicated that businesses are more positive about wider economic prospects. Notably, three in 10 (29%) London firms expect the UK economy to improve in the next 12 months, an improvement of six ppts when compared to Q4 2025. 

Recruitment activity showed a less encouraging picture yet remained stable. The proportion of London businesses that tried to recruit in Q1 remained consistent at one in four, as did the number of firms expecting to increase their headcount over the next three months, which was 28%. Amongst those that did try to recruit,  over two thirds (70%) met difficulties when hiring, a considerable increase from 63% in the prior quarter.

Despite these signs of early recovery, the outbreak of war in Iran has quickly introduced new pressures. Rising energy costs and heightened uncertainty are feeding through into the broader economy, with the Organisation for Economic Cooperation and Development (OECD) warning that the UK could be among the worst affected in the G7, cutting its 2026 growth forecast from 1.2% to 0.7% and projecting inflation of 4% for the year.

Global trade is also slowing, with the World Trade Organisation now expecting goods trade to grow by just 1.9% in 2026, compared with 4.6% in 2025. For London firms, these developments underline how quickly external shocks can reverse gains, disrupt planning and intensify cost pressures, reinforcing the need for resilience and adaptability in an increasingly volatile global environment.

Commenting on the findings of the report, Karim Fatehi OBE, Chief Executive Officer of the London Chamber of Commerce and Industry (LCCI) said:

“While it is encouraging to see clear signs of improving business confidence in London at the start of the year, this progress is now at risk. The escalation of conflict in Iran has introduced a renewed period of geopolitical uncertainty, driving up costs and undoubtedly weighing on expectations for growth, investment and hiring.

This shift highlights just how exposed businesses, particularly SMEs, remain to external shocks. Our members are reporting that impact across logistics and supply chains will likely lead to costs being passed onto consumer, from the rising price of fuel and shipping costs to concerns about supply continuity. Many firms had begun 2026 with cautious optimism, supported by some easing cost pressures and a more stable outlook. However, the recent deterioration, illustrated by the latest forecast from the OECD, underscores the speed at which confidence can be undermined when global conditions become more volatile. Firms have no option but to prioritise resilience over expansion.

It also reinforces the importance of building resilience into London’s business environment. Firms need the capacity to adapt quickly to changing conditions, but they cannot do this alone. A stable and supportive policy framework is essential to help businesses plan, invest and grow with confidence over the long term.

In particular, the government must play an active role by ensuring a predictable tax environment, providing clarity on employment costs and maintaining policies that support hiring and training for the long term. Creating the right conditions for stability will be key to enabling businesses to better withstand future shocks and sustain growth in an increasingly uncertain global economy.”


Other key findings:

Business Confidence

  • Business confidence saw a noticeable improvement, illustrating a generally positive outlook at the time of fieldwork.
  • 48% of London businesses expect their turnover to improve over the coming 12 months, driven by larger firms, while 33% expect no change and 19% anticipate a decline. 
  • Profitability expectations follow a similar pattern, with 48% of firms expecting profits to increase, 29% anticipating no change, and 23% expecting a decline. This is broadly consistent with Q4 2025.
  • Overall, 37% of respondents expect their company’s prospects to improve, 39% expect no change, and 24% anticipate a deterioration.

UK Economic Outlook

  • Confidence in the wider UK economy improved slightly. 
  • 29% of firms expect improvement in the UK economy, 33% foresee no change, and 38% expect a decline.
  • Outlook varied dramatically with firm size, with 27% of micro businesses expecting an improvement in the UK economy, compared to 49% of larger firms. 
  • Expectations for London’s economy broadly reflect the national outlook. 26% of firms expect improvement, 41% foresee no change and 33% anticipate a deterioration.

Business Costs and Price Pressures

  • Companies reported elevated costs, though at a lower level than previous quarters.
  • The share of firms reporting a rise in energy costs was 56% (falling slightly from 61% in Q4 2025).
  • Recent cost developments show increases: 47% of firms report rising pressure from employees to increase wages. Borrowing costs rose for 39% of businesses.

Labour Market

  • Employment trends over the past three months showed a slowdown in workforce activity.
  • 11% of firms reported employment increasing (down 2ppts), 72% reported no change, and 17% reported a decline (up 5 ppts).
  • Looking ahead, expectations remain relatively stable. 28% of companies expect their workforce to grow, while 49% expect to either replace leavers or keep their current workforce levels.

Recruitment and Training

  • Recruitment and training remained soft and was largely unchanged over recent quarters. 26% of firms attempted to recruit in the past three months, consistent with Q4 2025.
  • Recruitment challenges remain widespread among hiring organisations. 70% of recruitment firms reported difficulties (up 7ppts). These challenges were especially visible among smaller firms, with 79% of micro businesses reporting difficulties (up 15ppts), compared to 43% of larger firms (down 15ppts).
  • Apprenticeship use fell to 8%, down 5ppts following a particularly high level in Q4 2025.

Cashflow and Investment

  • Cashflow conditions over the past three months show a mixed but improving picture across firms. 31% reported an increase in cashflow, 37% no change and 32% a decline.
  • Firm size remained a key cashflow differentiator, with 59% of larger firms reporting increases in Q1, compared to 28% of micro businesses.
  • When asked about factors limiting investment or expansion in 2026, firms most commonly cite finance costs (42%), materials and supply costs (32%), and business rates (31%), followed by employer National Insurance contributions (22%), increases in the National Minimum Wage (18%), and Employment Rights Act requirements (14%). 
  • Among firms expecting higher business rate bills, 20% indicate they would reduce or cancel investment or expansion plans. Some may also consider rolling back investments to reduce cost pressures.


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 26 January and 3 March 2026. A total of 505 London business leaders were surveyed, with data weighted to reflect the capital’s business population by size and 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.

For media inquiries, please contact:

LCCI Press Office
E: [email protected]
T: +44 (0)20 7203 1897
M: +44 (0) 7767 110632

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