Business confidence in London rose at the fastest rate of any UK region or nation in January to the joint-highest level in the country, according to the latest Business Barometer from Lloyds Bank Commercial Banking.
Companies in London reported a rise in confidence in their own business prospects month-on-month, up 16 points to 63% and a 33-point climb in their confidence in the wider economy to 61%.
Taken together, this gives a headline confidence reading of 62% in January. This was 24 points higher than in December, and was both the largest month-on-month climb in confidence of any UK nation or region, and the joint-highest confidence level overall, tied with the North East (62%).
London businesses identified their top target areas for growth in the next six months as investing in their teams (44%), introducing new technology (44%) and entering new markets (38%).
A net balance of 47% of businesses in London also expect to increase staff levels over the next year, up 23 points on December.
The Business Barometer, which surveys 1,200 businesses monthly, provides early signals about UK economic trends both regionally and nationwide.
Overall, UK business confidence rose nine points in January to 44% – its highest level since February 2022 and its strongest start to a year since 2016. Firms’ outlook on the overall UK economy rose ten points from 27% to 37%, while businesses’ optimism in their own trading prospects also climbed three points month-on-month to 51%.
Companies’ hiring intentions increased marginally, with 33% of firms intending to increase staff levels over the next 12 months, up four points on the month before.
The West Midlands (56%) and Yorkshire & the Humber (44%) followed London and the North East (62%) as the most confident overall regions in January.
The East of England (38% in January vs. 45% December) and Northern Ireland (29% vs. 36%) were the only two regions to reporting declining levels of confidence. The majority of the data was collected before the December ONS inflation data was announced on January 17th.
Three of the four sectors tracked in the Barometer reported rises in confidence. The most significant increase was in services which accelerated 15 points to 45%, up from December’s 16 point drop. Manufacturing confidence also increased to 49%, while construction rose eight points to a 10-month high of 45%.
There was a more mixed picture in retail however, dipping three points to 41% with anecdotal evidence of weaker footfall and sales in December as shoppers hit the streets earlier than usual in November. Nevertheless, some companies still reported stronger sales over the festive period.
Paul Evans, regional director for London at Lloyds Bank Commercial Banking, said, “After a sharp drop in confidence in December, the capital is seizing the new year with a refreshed outlook and its trademark indomitable ambition.
“While retail sales were perhaps weaker than many businesses were hoping for over the traditionally busy festive season, firms and the City may be taking heart in early signs of strengthening consumer and business demand amid gradually slowing inflation.
“However London businesses choose to build on this confidence and execute their growth plans, we’ll be by their side with our specialist tools, insight and expertise.”
Hann-Ju Ho, Senior Economist, Lloyds Bank Commercial Banking added, “Businesses are feeling more confident following the cautious end to 2023, with this being the strongest start to a year since January 2016. The reduction in inflation, albeit with the recent uptick, and the belief that interest rates may have peaked is likely driving the rise in confidence among firms.
“With ongoing geopolitical issues and a general election on the horizon, businesses will have factored these into their risk radars and will be working to prepare for any potential impacts on their trading prospects.
“Also, half of all companies say they’re planning to increase headcount in the coming year. Despite that and the changes to minimum wage that will come into force in April, expectations for staff pay fell back following last month’s increase.”