London Business: Cautious Optimism Amid Economic Headwinds
As we move further into 2025, London’s business landscape is defined by a blend of cautious optimism and underlying concern. The latest Capital 500 report — London’s Quarterly Economic Survey from the London Chamber of Commerce and Industry (LCCI )— paints a picture of businesses trying to stay upbeat about their own growth prospects, even as broader economic challenges continue to mount.
A Positive Outlook for Turnover and Profitability
Despite economic turbulence, nearly half (48%) of London businesses expect their turnover to increase over the next 12 months. This suggests that many firms still see opportunities for growth and recovery as they emerge from a complex post-pandemic and high-inflation environment.
Profitability expectations, in particular, have seen a modest boost. The net percentage of businesses anticipating an increase in profitability rose to +32 in Q4 2024—up two points from the previous quarter. This optimism was especially notable among micro-businesses, where profitability sentiment climbed from +25 to +31. Larger firms, while still relatively upbeat, were slightly more reserved, with expectations dipping from +59 to +52.
Confidence in the Economy Falters
However, this business-level optimism is not mirrored in wider economic sentiment. Confidence in the overall UK economy has taken a sharp hit. Net confidence dropped by 23 points to -4 in Q4, its lowest since early 2023. Just 31% of businesses now believe the UK economy will improve in the next year. This reflects deep unease about recent policy announcements in the Autumn Budget, especially concerning employer costs and new employment legislation.
The contrast is striking: while businesses feel they can navigate their own paths, many are less sure about the direction of the national economy.
Inflation and Rising Costs: The Top Concerns
Inflation remains the dominant issue for London firms. Over half of the businesses surveyed named it as their biggest challenge in Q4 2024. Energy and fuel costs are compounding the problem. A staggering 61% of companies reported increased energy bills last quarter, up from 52% in Q3, while half experienced rising fuel expenses.
This persistent cost pressure is making it harder for businesses to plan, invest, and grow. It’s also leading to price hikes: 46% of firms expect to raise prices for their goods or services in the coming three months, up from 37% in Q3.
Domestic and International Demand Shows Mixed Signals
Domestic demand dipped slightly toward the end of 2024. The net balance for domestic sales slipped from +6 to +4, and orders fell even more sharply, dropping from +2 to -4. Export performance, while still relatively weak, showed marginal improvement. One in eight (12%) London businesses reported a rise in export sales in Q4, up from 10% the previous quarter. Similarly, 11% saw an increase in export orders.
These figures suggest that while there’s no dramatic collapse in demand, momentum has slowed. Many businesses are now in a holding pattern, waiting for clearer economic signals before committing to major changes.
Employment: Growth Hampered by Uncertainty
London’s labour market continues to show signs of stagnation. Only 14% of firms reported employment growth in Q4, a slight uptick from 13% in Q3. However, this was offset by a rise in businesses reducing staff, from 14% to 18%. Looking ahead, 31% of businesses expect their workforce size to grow in the next three months, which reflects some underlying confidence, but hesitancy remains.
Recruitment activity remained steady, with 30% of businesses seeking to hire during the last quarter. Investment in training also ticked up, with 24% of firms increasing spending in this area. Yet, there was a simultaneous increase in those cutting training budgets, from 9% in Q3 to 12% in Q4, suggesting a growing divide between businesses doubling down on talent development and those tightening the purse strings.
Investment Trends: A Mixed Picture
Investment in plant and equipment also saw mixed results. While 20% of businesses reported increased investment in Q4, the proportion of firms reducing their investment rose from 10% in Q3 to 16%, a worrying sign that cost concerns may be curbing long-term growth plans.
Cashflow remained largely unchanged: 29% of firms saw an improvement, while the share reporting a decline edged up from 26% to 28%. These marginal shifts underscore the fragile financial position many businesses continue to operate from.
A Call for Government Action
In response to these findings, the London Chamber of Commerce and Industry is urging the government to take decisive steps. Karim Fatehi OBE, Chief Executive of LCCI, highlighted the need for a policy environment that supports stability, investment, and innovation.
“2025 will be a year of cautious optimism for London businesses emerging from the volatility of an election super-year,” said Fatehi. “But firms are still facing significant hurdles — from rising costs to labour shortages. To drive long-term growth, the Government must address business concerns around employer costs, reduced business rates relief, and the Employment Rights Bill.”
James Watkins, Head of Policy and Public Impact at LCCI, echoed these sentiments. He called for more targeted interventions to reduce regional disparities and inflationary pressures. “It’s essential to remember that London’s business community has consistently demonstrated its resilience and adaptability. These qualities will carry us through, but they must be supported by policies that allow businesses to thrive.”
Conclusion: Resilient, but Cautious
The Q4 2024 Capital 500 survey shows that London businesses are walking a tightrope between hope and hesitation. Many are confident in their own prospects but wary of wider economic conditions, particularly as costs continue to rise and government policy shifts remain unpredictable.
Still, the capital’s businesses are no strangers to adversity. From Brexit to the pandemic to inflation, they have shown remarkable resilience. If policymakers can respond with clarity and support, 2025 could be a year where that resilience turns into real recovery.
For now, the mood is best summed up as cautious optimism—hopeful, but with eyes wide open.
Read the full Capital 500 Report here.