London business confidence showed tentative signs of recovery in early 2026, only to be overshadowed by a fresh wave of geopolitical instability that threatens to derail the fragile upswing.
According to the latest quarterly economic survey from the London Chamber of Commerce and Industry, nearly half of firms (48%) expected turnover to grow over the next 12 months in the first quarter of the year, up from 42% in the final quarter of 2025.
The improvement marked a modest rebound in sentiment across the capital’s private sector, driven in part by easing cost pressures after a prolonged period of inflationary strain. The proportion of businesses reporting rising energy costs fell to 56%, down from 61% in the previous quarter, offering some respite to firms grappling with tight margins.
But that progress is now under threat following the outbreak of war in Iran, which occurred after the survey period and has already injected renewed volatility into global energy markets.
Rising tensions and disruption in the Strait of Hormuz have begun pushing oil and gas prices higher once again, raising the prospect of a reversal in cost relief just as businesses were beginning to stabilise.
Optimism about the wider economic outlook also improved earlier in the year. Around 29% of London firms said they expected the UK economy to improve over the next 12 months, a rise of six percentage points on the previous quarter.
However, recruitment conditions remained broadly unchanged. A quarter of firms attempted to hire during Q1, while 28% expected to increase headcount in the following three months. Among those recruiting, 70% reported difficulties finding suitable candidates—up from 63% previously—highlighting persistent labour market tightness.
Economists warn that the external backdrop has deteriorated sharply since the survey was conducted. The OECD has cautioned that the UK could be among the worst affected G7 economies, cutting its 2026 growth forecast from 1.2% to 0.7% and projecting inflation of around 4%.
Meanwhile, the World Trade Organisation has downgraded expectations for global goods trade growth to 1.9% in 2026, down from 4.6% the previous year, reflecting a broader slowdown in international commerce.
For London businesses, the message is increasingly familiar: early signs of recovery can be quickly overwhelmed by external shocks, with energy markets once again emerging as the key source of uncertainty heading into the second quarter.
Karim Fatehi OBE, Chief Executive Officer of the London Chamber of Commerce and Industry (LCCI) said: “While it is encouraging to see clear signs of improving business confidence in London at the start of the year, this progress is now at risk. The escalation of conflict in Iran has introduced a renewed period of geopolitical uncertainty, driving up costs and undoubtedly weighing on expectations for growth, investment and hiring.
This shift highlights just how exposed businesses, particularly SMEs, remain to external shocks. Our members are reporting that impact across logistics and supply chains will likely lead to costs being passed onto consumer, from the rising price of fuel and shipping costs to concerns about supply continuity. Many firms had begun 2026 with cautious optimism, supported by some easing cost pressures and a more stable outlook. However, the recent deterioration, illustrated by the latest forecast from the OECD, underscores the speed at which confidence can be undermined when global conditions become more volatile. Firms have no option but to prioritise resilience over expansion.
It also reinforces the importance of building resilience into London’s business environment. Firms need the capacity to adapt quickly to changing conditions, but they cannot do this alone. A stable and supportive policy framework is essential to help businesses plan, invest and grow with confidence over the long term.
In particular, the government must play an active role by ensuring a predictable tax environment, providing clarity on employment costs and maintaining policies that support hiring and training for the long term. Creating the right conditions for stability will be key to enabling businesses to better withstand future shocks and sustain growth in an increasingly uncertain global economy.”
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