London business confidence falters but remains among highest in UK

Business confidence in London fell 27 points during November to 22%, but is still the second highest of all UK regions and nations, according to the latest Business Barometer from Lloyds Bank Commercial Banking – conducted between 1st-15th November, before the Chancellor’s Autumn Statement announcement on Thursday the 17th November.

Companies in the capital reported lower confidence in their own business prospects month-on-month, down 17 points at 37%. When taken alongside their optimism in the economy, down 35 points to 7%, this gives a headline confidence reading of 22%.

Despite the fall in optimism during November, a three-month average of local businesses’ confidence scores reveals a more positive picture. The average sits at a net confidence score of 35%, factoring in monthly scores of September, October and November.

The Business Barometer, which questions 1,200 businesses monthly, provides early signals about UK economic trends both regionally and nationwide.

London businesses identified their top target areas for growth in the next six months as evolving their offering (34%), investing in their teams (32%) and investing in sustainability (30%).

A net balance of 16% of the city’s businesses expect to increase staff levels over the next year, down 24 points on last month.

Overall UK business confidence fell five points during November, but remained positive at 10%. Firms’ outlook on their future trading prospects was down two points to 25%, and their optimism in the wider economy dropped four points to -2%. Despite a seven-point dip, UK businesses remained positive about hiring intentions with 14% of firms aiming to create new jobs in the next 12 months.

All UK regions and nations, apart from the South East, reported a positive confidence reading in November, with seven recording a month-on-month increase in confidence. Of those recording an increase in confidence, Scotland (up 19 points to 24%), Wales (up 12 points to 17%) and the South West (up nine points to 5%) saw the largest monthly changes, with Scotland now the most optimistic overall.

Becci Wicks, regional director for London at Lloyds Bank Commercial Banking, said: “While it’s disappointing to see London firms’ confidence take a knock, overall they remain optimistic about their trading prospects and what the year ahead will bring.

“We can take particular encouragement from businesses’ intentions to invest in their teams, with a large proportion planning on creating new jobs as they refocus on their ambitions for the New Year.

“Even more positively, we’re seeing more firms plan to invest in sustainability measures which can have a positive impact on the bottom line. Our Clean Growth Financing Initiative, which provides discounted lending to support green investments, will help firms do their bit in the transition to net zero.”

Business confidence in retail increased to 15% (up from 9%), perhaps reflecting a renewed confidence in trading prospects ahead of the festive season. However, business confidence in the manufacturing sector fell for the sixth month in a row, to 4%, down 9 points, the lowest confidence level since early 2021.

The construction sector held gains made in October, remaining unchanged at 20%, although this level still remains weaker than in the first half of the year.

Hann-Ju Ho, senior economist for Lloyds Bank Commercial Banking, said: “Given the recent political and economic landscape, it comes as little surprise that economic optimism and business confidence have fallen this month. Pay growth expectations remain high by historical standards, which could signal ongoing difficulties ahead for businesses to fill vacancies. Looking ahead, it will be interesting to see if the clearer policy picture provided by the Autumn Statement will lead to business confidence moving in a more positive direction as we go into 2023.”