London businesses weather storm as domestic demand rises

The results of the London Chamber of Commerce and Industry's (LCCI) second quarterly economic study show that London businesses are weathering the storm despite enormous cost constraints and inflation.

Between April 26 and May 30, 2023, the LCCI's quarterly economy study, Capital 500, surveyed 510 London business leaders. According to the poll, domestic demand for London businesses increased in Q2, with the order balance growing for the first time in five quarters.

Domestic sales for London businesses experienced a surge in Q2 of 2023. Twenty-four per cent of enterprises in the capital reported increased sales in the second quarter, up from 21 per cent in Q1.

The report found that 39 per cent of London firms anticipate increased profitability and turnover in the coming year. Cash flow also improved, with 22 per cent of businesses reporting an increase in the past quarter, up from 19 per cent in the first.

However, London businesses are more prone to be pessimistic about the UK's prospects, with 44 per cent expecting the country's economic growth to fall. More than two-thirds (69%) of London businesses reported growth in energy prices in Q2 of 2023 compared to the previous three months, the survey revealed.

In response to the report's findings, Richard Burge, Chief Executive of the London Chamber of Commerce and Industry (LCCI), recognised the resilient and entrepreneurial spirit of the London business community. Burge stated that there has been an increase in business confidence.

He said this, with the report revealing that 24 per cent of London businesses anticipate the economy to improve over the next year. Additionally, Burge stated that London could lead the national economic revival with better government backing, adding that in order to maintain the recovery's pace, stubborn inflation figures necessitate supply-side measures.

Key findings from the Q2 2023 Quarterly Economic Survey revealed that domestic orders increased for the first time in five quarters in Q2 2023. One in every five (22%) London businesses reported an increase in orders during the preceding three months, up from 15 per cent in Q1.

Furthermore, 13 per cent of businesses reported improved sales compared to Q1 2023. Last quarter, 11 per cent of London businesses reported an increase in export orders.

Despite the huge cost pressures, 43 per cent of businesses look forward to an increase in their goods and/or services prices in the next three months, from 50 per cent in the previous quarter. Although a large number of businesses still report energy costs, rising energy prices are marginally less likely to have increased in the recent three months compared to the previous three.

More than two-thirds (69%) of London businesses reported an increase in energy prices in the second quarter of 2023 compared to the previous three months. This was down from 74 per cent in the Q1 2023 Capital 500, but only 4 per cent of enterprises in the latest study reported lower energy costs.

Inflation, according to the report, is the top concern for 66 per cent of London businesses, indicating that the present national economic crisis is still on the minds of business owners. However, this figure is down from 73 per cent in the previous quarter.

The survey further revealed employment trends. According to the Q1 2023 Capital 500, one in every five (22%) London enterprises expects their staff to grow in the following three months. Only 5 per cent believe their employment will decrease, which is encouraging.

Larger organisations continued to be more optimistic about their staffing numbers in Q2 than tiny firms (19%), with half of larger firms (51%) anticipating employment levels to rise in the next three months.

In Q2 2023, London firms' recruitment attempts stagnated for the first time in two years. The percentage of organisations that claimed they tried to recruit in the previous quarter fell from 25 per cent to 23 per cent, owing to a lower share of micro businesses looking to hire new employees (19%).

In comparison, two-thirds (66%) of larger enterprises sought to hire in Q2, up from 61 per cent in Q1.