BUSINESS CONFIDENCE IN LONDON FALLS TO LOWEST POINT UNDER LABOUR

Business confidence in London has fallen to its weakest level since 2023, as firms grapple with rising costs, tighter labour regulation and a deteriorating outlook for both the capital and the wider UK economy.

The latest quarterly economic survey from the London Chamber of Commerce and Industry paints a sobering picture of sentiment among the capital’s business leaders, with expectations for growth sinking to their lowest point under the current Labour government.

Just 25 per cent of London businesses surveyed expect the capital’s economy to improve in 2026. Confidence in the UK economy is even weaker, with only 23 per cent anticipating an improvement. Both figures represent the poorest outlook recorded during the stewardship of Prime Minister Keir Starmer and Chancellor Rachel Reeves, highlighting growing unease about the Government’s ability to deliver sustained economic growth.

The deterioration in confidence is feeding directly into the labour market. Only a quarter of London firms reported recruitment activity in the final quarter of the year, down sharply from 34 per cent just six months earlier. Businesses cite mounting caution in the face of new employment regulation, particularly following the introduction of the Employment Rights Act.

While the legislation aims to strengthen worker protections, employers warn that measures such as guaranteed hours contracts, expanded sick pay and wider unfair dismissal rights are raising costs and reducing flexibility. Many firms say the increased risk of litigation is making them less willing to hire, particularly at a time of fragile demand.

Price pressures are also intensifying. More than half of London businesses — 53 per cent — expect to raise prices over the next quarter, up from 44 per cent in the previous survey. These anticipated increases come as firms prepare for higher wage bills driven by planned rises to the National Living Wage and National Minimum Wage, alongside concerns that proposals for a tourist tax could further undermine the capital’s competitiveness.

Investment levels have weakened in parallel. The proportion of firms reporting increased spending on plant and equipment fell to 18 per cent in the final quarter, down from 25 per cent in the previous period. The pullback has been most pronounced among micro businesses, 15 per cent of which reported a decline in investment, underlining the vulnerability of smaller firms to rising costs and policy uncertainty.

There was, however, a modest improvement in export revenues, with 17 per cent of London businesses reporting higher overseas sales, up five percentage points on the previous quarter. Yet the share of firms seeing an increase in export orders remained unchanged at 12 per cent, suggesting that revenue growth may be driven by the completion of existing contracts rather than a meaningful recovery in demand.

Commenting on the findings, Karim Fatehi said the results should act as a warning signal for policymakers.

“Record low business confidence under this government is bad news for the Prime Minister, bad news for the economy, and bad news for the country. There is no economic growth unless businesses have the stability and confidence they need to take risks, invest, hire and expand.

“At the end of a tough year London businesses needed certainty from the Budget after last year’s tax rises but the only certainty they received was higher costs. Rather than making tough decisions on public spending, the Chancellor shifted the burden onto businesses and the public.”

He added that the rapid passage of the Employment Rights Act had compounded concerns. “This was followed swiftly by the Employment Rights Act receiving Royal Assent after only modest, albeit welcome, changes to make it more workable for businesses. Employment protections are vital but the balance of power has tipped too far the other way and employers are increasingly reluctant to hire as they face greater costs and risks.”

Fatehi urged ministers to recalibrate their approach in the coming year. “The government’s new year’s resolution for 2026 must be to listen to businesses — the job-creators, taxpayers, and innovators we’re relying on to rebuild the economy. Stop weighing them down with increased costs and regulation, and give them the confidence they need to grow.”

The survey also shows weakening profitability expectations, tighter cashflow conditions and ongoing pressure from energy and borrowing costs, particularly among larger firms. While labour market conditions remain broadly stable, most indicators point to continued restraint in hiring and investment unless confidence improves.