Wednesday, 6 January 2016

London businesses predict success in 2016 as growing sales figures underpin strong performance

Underlying indicators of business performance suggests strong basis for economic growth in London in 2016

Substantial improvement in cashflow positions of Capital 500 companies

LCCI makes four key recommendations on transport, infrastructure, apprenticeships and devolution to cement London economy for the medium and longer term

Results from London's largest and most authoritative regular business survey, the Capital 500, indicate strong business performance in London, buoyed by growing domestic demand for goods and services.

London Chamber of Commerce and Industry (LCCI) today published the final Quarterly Economic Survey report for 2015.

The quarterly survey of over 500 London business leaders, conducted by ComRes for LCCI in November, shows the overall balance figure for domestic sales is up six points to 9%.

The report also shows the overall balance figure for cashflow is at the highest level since the Capital 500 survey was established two years ago.

While there is some evidence to suggest that growth in employment and investment may be slowing, London businesses are still looking to expand.

The survey also shows market conditions are favourable, as reflected in positive expectations for the next 12 months in terms of business turnover and profitability.

Commenting on the figures, London Chamber of Commerce and Industry Chief Executive, Colin Stanbridge, said: "London businesses are performing well amid a growing business consensus that UK economic growth is stabilising. However, while these signals are encouraging, in order to protect the capital's position as a world-leading place to do business, Government must now look to cement a strong London economy for the medium and longer term. This has to include realistic investment in the capital's strategic transport infrastructure, practical steps to tackle the skills gap and, ultimately, enhanced devolution as London surges toward being a city of nine million people by 2020.

"The continued dithering over London airport capacity is a concern. Prolonged political uncertainty about London airport capacity may come to colour the perceptions of shareholders about new or further investment in UK major infrastructure. If that were to come about, in time, a host of impacts on the wider economy may become apparent."

Centre for Economic and Business Research (CEBR) chief economic adviser Vicky Pryce said: "The survey for London confirms the general picture across the UK which is one of slow growth in exports, particularly affecting manufacturing. This is partly due to a stronger sterling but also to unusually weak world trade growth for this point in the cycle. A slowdown in the emerging markets is to a large measure responsible for that, but also geopolitical tensions - which have if anything intensified recently.

"The result is that businesses are increasingly cautious, with investment intentions slowing down with much of the focus on cost-cutting and rationalisation to achieve efficiencies. This is hardly surprising given the concerns over the state of the global economy but also policy uncertainty in the UK - not just in the area of infrastructure spending on airports and elsewhere but also over membership of the European Union."

LCCI has made four key recommendations following the latest survey results to help maintain business confidence across the capital.

Recommendation 1: The interdependency of trade and air-links needs to be a central consideration in the runway decision process. However, as any new runway will not be operational until the mid-2020s, Ministers should enact practical short-term measures to boost London airport capacity and make best use of existing airport, airfield and terminal infrastructure around the capital.

Recommendation 2: To ensure that the apprenticeships being created are of a sufficiently high quality to meet businesses' skills needs, the Government should review its collaboration and cooperation with business especially around the setting and maintenance of apprenticeship standards.

Recommendation 3: While the announcement of a new Transport Development Fund is welcome, the Government should be prepared to allocate additional funding if required to get vital strategic infrastructure projects into development.

Recommendation 4: London's elected politicians - not Whitehall - are best placed to understand the capital's future needs. The Government should revisit the debate on fiscal devolution to the capital; its impact on public finances and how an enhanced devolution arrangement might work in practice.

Key findings from Capital 500 Q4 2015 survey include:

• Domestic demand: 24% of business leaders reported an increase in domestic sales over the last three months, 15% reported a decrease. Balance figure: +9% (six point increase on Q3)
• Export demand: 8% reported an increase in export sales; 4% of firms reported a decrease. Balance figure: +4% (up one point on the previous quarter)

Labour market:

• 83% of Capital 500 businesses reported no change in employment levels; 10% of firms increased employment levels, and 7% decreased them. Balance figure: +3% (three points above Q3 2015)
• 11% of Capital 500 firms expect their workforce to increase in the next three months; 5% anticipate workforce size to decrease. Balance figure: +6% (a four point decrease on the previous quarter)

Recruitment and training:

• 16% of business leaders looked to hire new staff during previous three months (a one point increase on Q3)
• 51% of firms that looked for new staff in the last three months encountered difficulties recruiting
• 10% of companies increased their training investment plans in the last three months; 8% reduced them. Balance figure: +2% (up one point on the previous quarter)

Business costs:

• Energy prices replaced wages as the cost most likely to have increased for Capital 500 companies
• Increased costs: Energy - 24%; Pressure to increase wages - 19%; Raw Materials (Domestic) - 18%; Raw Materials (International) - 17%; Fuel - 17%; Borrowing - 11%
• 39% of firms said competition was a greater concern to their business than three months ago. 19% were more concerned about business rates than in Q3; 17% were more concerned about interest rates

Cashflow and investment:

• 24% of firms reported an increase in cashflow position; 18% reported a decrease. Balance figure: +6% (a six point increase on Q3)
• 10% of firms reported an increase in capital investment plans (in plant and equipment); 9% reported a decrease. Balance figure: +1% (a four point decrease on Q3)

Business confidence:

• 33% of business leaders expected their firms' prospects to improve over the next 12 months; 9% anticipated a decline. Balance figure: +24% (no change since the previous quarter)
• 41% of firms expected turnover to increase over the next 12 months; 12% expected a reduction in turnover. Balance figure: +29% (four point increase on Q3)

Economic outlook:

• 34% of firms expect UK economic growth to improve over the next 12 months; 15% expect it to contract. Balance figure: +19% (seven point decline on Q3)
• 33% of firms expect London's growth prospects to improve over the next 12 months; 11% predict a decline. Balance figure: +22% (eight point decline on previous quarter)

ENDS

Media contact
Natalie Davison
T: +44 (0)20 7203 1897
M: +44 (0)7827 241528
E: ndavison@londonchamber.co.uk

CEO Colin Stanbridge is available for further comment and interview.

You can read the full report here

NOTES TO EDITORS:

1. London Chamber of Commerce and Industry (LCCI) is the capital's largest and most representative business organisation, with members ranging in size from multi-national companies to SMEs and sole traders.
2. For over a decade LCCI has conducted a Quarterly Economic Survey (QES) of members to gauge business performance and general confidence levels across the capital. This is part of the biggest and longest running national private business survey, conducted by regional chambers of commerce across the UK every quarter.
3. Since Q2 2014, LCCI has partnered with leading polling company, ComRes, to expand the survey beyond LCCI membership to poll a panel of London businesses that are fully representative of the London economy by business size and broad industry sector.
4. ComRes interviewed 511 London business leaders between 2 and 19 November 2015. All data was weighted to be representative of all London businesses by company size and broad industry sector.
5. Comres is a member of the British Polling Council and abides by its rules. Full data tables are available at www.comresglobal.co.uk.
6. The balance figures representative the percentage of firms that reported an increase minus the percentage that reported a decrease.
7. Follow the discussion on Twitter using #Capital500.