Tuesday 9 July 2024

London businesses experienced a notable improvement in cashflow during the second quarter of 2024, according to the Capital 500, London’s quarterly economic survey conducted by the London Chamber of Commerce and Industry (LCCI). The net balance, representing the percentage reporting an increase minus those reporting a decrease, rose 9 points to -2 in Q2 2024, the highest level since Q3 2021. Over a quarter (27%) of firms reported increased cashflow in Q2, up from 24% in Q1.

This positive trend spanned businesses of all sizes. Micro firms (0–9 employees) saw their cashflow balance improve from -15 to -5, with 25% reporting a rise compared to Q1. Larger companies (10 or more employees) also posted significant gains, with the net balance climbing 7 points to +30, the highest recorded by the Capital 500.

The improvement in cashflow was mirrored by a growing domestic demand in Q2, with 27% reporting increased sales, while 25% experienced a decline. This led to the net balance for domestic sales climbing 7 points to +2, the highest since Q1 2022. Despite this rise, domestic orders remained largely unchanged from Q1 to Q2, rising just 1 point to -1. 

This trend extended to export sales which also picked up throughout the quarter, with the proportion of companies reporting higher export sales growing from 10% to 13%. This was primarily driven by micro businesses and service-sector companies, particularly in retail and hospitality.

There were some positive signs of easing cost pressures, although metrics remain significantly above pre-2022 levels. In Q2, 58% of firms reported increased energy costs over the past three months, the smallest share since Q3 2021 and down from 67% in Q1 2024. Meanwhile, although only 5% of businesses saw a decline in energy costs, there was still an 8-point fall in the net balance for energy costs to +53. At the same time, labour cost pressures persist, with 44% of firms facing increased wage demands in Q2, and 45% of companies expecting their prices to rise in the next three months, up from 42% in Q1 2024.

Business confidence soared in Q2, with more than half (52%) of London companies expecting their profitability to improve over the next 12 months, compared to just 15% who anticipate a decline. This optimism pushed the net balance up 9 points to +37, setting a record for the QES.

Other key findings include:

• Utility costs were the primary factor driving prices up for 51% of firms, followed by labour (41%), finance (33%), raw materials (29%), and fuel (22%). Meanwhile, inflation remains the top concern, with 59% of London businesses expressing heightened worry compared to three months ago.
• Recruitment activity slowed in Q2 with 23% of firms attempting to hire, down from 28% in Q1, marking the lowest level in a year. Micro firms notably decreased hiring efforts to 18% from 24% in Q1.
• London's labour market showed minimal movement in Q2, with the employment balance improving slightly from -4 to -3. However, larger firms experienced a significant drop from +14 to +4, marking a three-year low, despite overall positive workforce expectations.
• Businesses showed continued high levels of training investment, with the net balance reaching a record high of +14 in Q2. Micro companies achieved a record balance of +12, while larger firms increased their training investment to +32, reflecting a strong commitment to workforce development.

The Capital 500 aims to assess private sector performance and confidence levels among businesses of all sizes across the capital. It is noteworthy that part of the fieldwork for this latest QES was conducted after the UK general election announcement on May 22, 2024.

On the findings of the report, Karim Fatehi MBE, Chief Executive of the London Chamber of Commerce and Industry (LCCI), commented:

“As a new government steps into power, the latest insights from the Capital 500 reveal a strong resurgence in cashflow for London businesses during Q2 2024. This positive trend not only reflects our city's resilience but also underscores the crucial role economic stability plays in fostering growth and prosperity. While challenges persist, including cost pressures and inflation concerns, the surge in business confidence, with over half of companies expecting improved profitability, points to a hopeful outlook amidst the evolving political landscape.”

Read the full Capital 500 Report here.

ENDS

Notes to editors

• Savanta surveyed a total of 514 London business leaders between 7 May and 7 June 2024. 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.