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London firms sound alarm on growth prospects amid policy concerns

Thursday 2 July 2026

Around six in ten London businesses expect the UK’s economy to deteriorate over the next 12 months, according to the London Chamber of Commerce and Industry’s latest quarterly economic survey, the first conducted since the outbreak of the Iran war. Across the quarter, firms faced persistent inflationary pressures, rising operating costs and subdued investment, leaving many concerned about the prospects for growth amid a challenging economic and political backdrop.

The findings come amid heightened uncertainty both at home and abroad. Growing domestic political turbulence and unpredictability about the future direction of government are adding to concerns among businesses already navigating a volatile global environment. This is reflected in firms’ perceptions of the policy environment, with half (49%) expecting that the Government’s approach to the economy will worsen UK economic growth. Continued geopolitical tensions and fragile trading conditions are also weighing on outlook, creating a more challenging backdrop for firms seeking to invest, expand and plan for the future. 

These pressures are increasingly feeding through into firms’ day-to-day operating environment. Instability in the Middle East continues to place pressure on energy markets and supply chains, as more than half of London firms (51%) reported higher energy costs in the last quarter, while 57% faced increased fuel costs. Inflation remains the leading external concern, with 47% of businesses more concerned about it than three months earlier, followed by competition (25%), corporate taxation (24%), interest rates (21%).

Sustained pressure is also impacting into recruitment activity, with hiring intentions remaining subdued across the capital. Just 7% of London firms expect to expand their workforce during the next three months, including only 5% of micro businesses compared with 31% of larger firms. Overall, only 10% attempted to recruit last quarter. Of those that did try to recruit, 61% reported difficulties, particularly when filling professional and managerial roles (61%) and skilled manual or technical positions (51%).

Expectations about growth prospects vary significantly by business size and, by extension, levels of exposure to economic volatility, with pessimism particularly evident among small businesses. Larger organisations are more than twice as likely as micro businesses to expect an improvement in London’s economy in the next year (32% versus 13%).

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

“These findings should serve as a clear warning to the incoming Prime Minister that London’s economic landscape is failing to provide the conditions firms need to grow. Confidence remains weak, while rising costs continue to restrict investment, recruitment and ultimately growth.

Small businesses are being hit hardest. With less capacity to absorb these further costs, SMEs are increasingly being forced to postpone investment and hiring, despite being central to jobs and growth across London’s high streets.

At a time of heightened geopolitical uncertainty, it is critical that the domestic environment does not add further instability. There is, however, an opportunity for the new administration to act decisively to restore confidence and reset its relationship with business. By delivering the reforms needed to attract investment and increase competitiveness, we can get London growing. When businesses are supported on delivering growth and prosperity in London, we know the whole country benefits.

That means easing the cost burden on business, delivering urgent reform of business rates, and setting out a clear strategy to unlock investment in skills and infrastructure. Without this, London’s competitiveness and growth prospects will continue to erode, and we will not deliver national economic growth.”

Other key findings: 

Business confidence

  • London businesses reported falling confidence compared to Q1 2026, with 24% expecting their profitability to improve in the coming 12 months.
  • 15% of respondents expect their company’s prospects to improve over the next year, while 37% expected them to worsen. This included 13% of micro businesses and 40% of larger firms expecting improvement.
  • 43% of firms expect the Government's approach to the economy to worsen their company's prospects, while 8% expected an improvement.

Economic outlook

  • 12% of London businesses expect the UK's economy to improve in the next 12 months, including 12% of micro businesses and 27% of larger firms. 
  • Expectations for London follow a similar pattern, as 15% of firms expect London's economy to improve in the next 12 months, including 13% of micro businesses and 32% of larger firms. 
  • 49% of firms said the Government's approach to the economy would worsen UK economic growth, while 16% expect it to improve growth. 

Business costs

  • Cost pressures remain widespread, with firms most commonly reporting higher fuel (57%), energy (51%) and domestic raw material (41%) costs.
  • When asked what was putting pressure on them to raise prices, businesses most cite utilities (30%), labour (25%) and raw materials (23%).
  • Inflation is the most frequently cited external concern, with 47% of firms saying it is more of a concern than three months ago. 
  • The wider cost environment is also visible in views on taxation, with 66% of firms saying the current overall level of business taxation is too high. 

Domestic and export demand

  • 16% of firms reported higher domestic sales, including 14% of micro businesses and 39% of larger firms.
  • Manufacturing firms reported stronger sales growth than services firms, at 27% compared with 14%. 
  • 7% of firms saw increased export sales revenue in the last quarter, and 5% reported an increase in export orders. 

Labour market, recruitment and training

  • 11% of businesses reported an increase in their workforce size.
  • 7% said they expect to grow their workforce over the next three months, compared with 11% expecting reductions. 
  •  Only 10% of firms attempted to recruit in the last quarter, including 9% of micro businesses and 48% of larger firms. 90% of firms reported no recruitment activity at all.
  • Among firms that recruited, 61% experienced difficulties, particularly when filling professional and managerial roles or technical roles.
  • 10% of firms reported increased investment in training over the past three months. 

Cashflow and investment

  • Only 16% of firms reported improved cashflow over Q2, while twice as many (32%) reported a decrease. 
  • Cashflow improved for 34% of larger firms, compared with 15% of micro businesses. 
  • 7% of firms reported increased plans for investment in plant and equipment in the quarter.
  • More than two in five London businesses (43%) reported they began the financial year in a worse financial position than one year ago, compared with 21% reporting an improvement. 


ENDS


Notes for 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.
  • YouGov is an international online research data and analytics technology group. Its panel comprises millions of registered members across 64 markets, generating millions of interconnected data points. Combined with its technology platforms, this enables the delivery of real-world insights across a range of economic, social and business issues.
  • Q2 2026 is the first London Quarterly Economic Survey wave delivered by YouGov. While the survey continues to follow the core QES framework, the weighting approach differs from previous waves, particularly by business size. Comparisons with earlier quarters should therefore be treated with caution, and the Q2 2026 findings should be read primarily as a current-quarter snapshot.
  • All figures, unless otherwise stated, are from YouGov Plc.  The total sample size was 512 senior decision-makers in London businesses. Fieldwork was undertaken between 6 May and 3 June 2026.  The survey was carried out online. The figures have been weighted and are representative of private-sector London businesses by size and industry.
  • 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 businesses (small, medium and large firms) with 10 or more employees.
  • Any data reproduced from this report must be fully referenced.


For media inquiries, please contact:

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


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