London’s private sector continued to expand in May, marking a twelfth consecutive month of growth, although the pace of increase softened from April’s recent highs.
While elevated costs and global uncertainty created some headwinds, firms across the capital continued to report solid demand, supporting a further rise in business activity and new orders.
The headline London Business Activity Index eased from 57.4 in April to 53.6 in May. Although this was the slowest rate of growth since July 2025, it still signals a solid expansion in output, and stands in contrast to a slight decline at the UK level.
Underlying demand remained a key source of resilience, even as higher fuel prices, wage pressures and geopolitical uncertainty led some businesses to delay spending decisions.
Catherine van Weenen, NatWest’s Regional Managing Director, Commercial Mid-Market, London & South East, said:“London’s economy continued to show resilience in May, with businesses reporting sustained growth in activity and new work. While the pace of expansion has cooled since earlier in the spring, the capital remains a key driver of UK economic performance.
“Firms are navigating a challenging environment, with higher costs, particularly fuel and wages, and ongoing global uncertainty weighing on decision-making. Even so, demand remains solid and businesses are adapting well to these pressures.
“Employment has continued to fall as companies respond to rising costs and invest in productivity, including through AI. However, the outlook for London remains bright. Business confidence is still among the strongest in the UK, reflecting firms’ continued focus on long term investment and growth opportunities.”
The London private sector registered another solid increase in total sales volumes during May. Expansions have been recorded in each of the past ten months, compared with a more varied performance at the UK level in that timeframe. In May, London topped the national rankings in terms of new business growth.
Anecdotal evidence pointed to new business wins, client conversions and sign offs on critical business projects. However, several firms noted that the Middle East conflict and rising inflation had partly led to weaker demand and delays completing sales.
Business confidence was strong in May, with companies across the capital posting the highest expectations for future activity out of the 12 monitored UK areas. Nevertheless, the level of optimism ticked down to an eight-month low and fell slightly below the long-run survey average. Panel members were reportedly encouraged by long-term business investments and sales growth, but concerned about market uncertainty, price rises and the potential impact on profits.
The seasonally adjusted Employment Index registered in sub-50.0 territory for the seventh month running in May, indicating a further contraction in job numbers at London-based companies. Furthermore, the overall rate of reduction was steep and more pronounced than the UK average.
Where staffing levels fell, businesses commented on a range of factors, including falling workloads, weak travel demand, the minimum wage increase, and productivity gains through greater AI usage.
On falling workloads, the latest survey data indicated a further decrease in work backlogs during May, following the first reduction for five months in April. The rate of decline was modest, but sharper than in the previous month. Some firms reported that delays beginning new projects had enabled them to cut down on outstanding work.
Although backlogs declined over the latest survey period, they did so at one of the softest rates seen in the UK.
The inflation environment remained challenging for London-based companies during May, indicated by another rapid increase in overall input costs. Although less severe than that seen in April, costs still rose at the second-fastest rate since December 2022. Rising fuel prices, wage increases and higher IT equipment costs were often mentioned as factors pushing expenses higher.
However, the rate of input price inflation in London was one of the weakest observed out of the12 monitored UK regions and nations. Only Scotland and the North East posted softer rises.
The drivers of higher costs often pushed businesses to mark up their output charges over the latest survey period. Panellists also commented on increased business rates and rising interest costs as reasons for lifting their fees. The overall increase in charges was slightly softer than April’s 42-month high, but elevated, nonetheless.
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