A punitive Employment Rights Act and Autumn Budget have seen London’s business confidence drop to its lowest level under the Labour government, according to the London Chamber of Commerce and Industry’s latest quarterly economic survey of the capital’s business leaders.
Just a quarter (25%) of London businesses surveyed expect the capital’s economy to improve in 2026, with favourable expectations for the UK’s economy even lower at 23%.
These figures represent the weakest economic outlook under Keir Starmer and Rachel Reeve’s stewardship of the economy and the lowest levels since 2023, indicating businesses’ declining confidence in the Government’s ability to deliver growth.
Falling economic and business confidence has been matched by a growing reluctance to hire new staff.
Just a quarter (25%) of London’s businesses engaged in recruitment activity in Q4, down from over a third (34%) just six months ago in Q2. This more cautious approach to hiring comes amidst tighter regulation from the Government’s Employment Rights Act.
Guaranteed hours contracts, though well-intentioned, threaten to undermine the flexibility that some firms and workers rely on, and expanded sick pay and unfair dismissal rights making employers less willing to take a chance on new employees for fear of increased costs and potential litigation.
Over half of business owners expect to have to raise prices to meet rising business costs, with 53% of London businesses anticipating a rise in the price of their goods and services over the next quarter, compared to just 44% in Q3. These anticipated rises are adding further pressure to London’s businesses which are already threatened by planned increases to the National Living Wage and National Minimum Wage and proposals for a new tourist tax on the capital’s competitiveness, a s revealed by the Chancellor in November.
Investment shows a similarly concerning picture. The share of London businesses reporting increased plant and equipment investment fell sharply in Q4 to 18%, down from 25% in Q3. This decline has been driven primarily by London’s micro businesses, 15% of which reported decreased investment, pointing to ongoing vulnerabilities for smaller firms operating in the capital.
Against this backdrop of concern, strengthened export activity offers a thin silver lining. The percentage of London businesses reporting an increase in export sales revenue rose to 17% in Q4, up by 5ppts compared with Q3. However, the share of firms reporting an increase in export orders remained unchanged from last quarter at 12%, indicating that this growth in revenue may simply reflect the fulfilment of existing contracts rather than any sustained expansion in demand.
Karim Fatehi OBE, Chief Executive Officer of the London Chamber of Commerce and Industry (LCCI) said, “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.
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.
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.”
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