London businesses saw an improvement in activity growth at the start of 2025, as the capital continued to outperform national trends.
The headline London Business Activity Index – a seasonally adjusted index that measures the month-on-month change in the combined output of the region’s manufacturing and service sectors – rose to 54.8 in January, up from 54.2 in December and the highest in seven months. The reading indicated a sharp expansion in private sector output at the beginning of the year.
Higher output levels were often a result of resilient demand conditions, according to the survey panel. Indeed, London firms saw another solid increase in new work inflows during January. The uplift in activity also came despite job shedding, as firms were able to boost productivity amid cost saving efforts.
Catherine van Weenen, Territory Head of Commercial Mid Market at NatWest, said: “The capital’s private sector economy grew sharply in January. The pace of business activity growth jumped to a seven-month high and was the strongest seen out of the 12 monitored UK regions and nations (overtaking the North East).
“With employment cuts widely recorded, the uplift in output suggests firms were able to make productivity gains, which bodes well for the region’s growth over the next few months if more job cuts are enacted.
“Although demand momentum was the strongest seen nationally, firms indicated that rising economic risks were starting to dampen sales. Inflation is another concern, particularly as the passing on of higher staff costs led to faster upticks in both input costs and output prices.
“The Bank of England’s interest rate cut last week means that policy is now less restrictive, with further loosening expected in the year ahead.”
Performance in relation to UK
London overtook the North East as the fastest-growing region in January, as most UK areas saw output slump. On a national basis, business activity rose only marginally at the start of 2025.
The level of new work received by private sector companies in London increased for the seventeenth month in a row during January. The latest uplift was solid, albeit the weakest recorded since May 2024.
Compared to the UK trend, demand conditions in the capital remained favourable. Out of the 12 monitored UK regions and nations, London registered the fastest rise in new orders at the start of 2025. The North East was the only other region to record an upturn.
Anecdotal evidence from the survey panel signalled new client wins and increased demand from European customers. That said, there were some reports of uncertainty in global markets delaying new projects.
Resilient demand underlined positive expectations for business activity in the year ahead at London-based firms. January saw the degree of confidence pick up from December’s 14-month low. Companies were optimistic about sales pipelines and longer-term investment, although some projected a weaker outlook for the national economy.
London companies reported a steep and accelerated reduction in employment levels at the start of the year. The pace of decline was the sharpest recorded in four years. Positively, it was slightly less marked than the national trend.
Businesses commented on restructuring efforts and cost tightening exercises in response to weak economic conditions and expected budgetary challenges. However, some firms reported greater staff investment amid expansionary efforts.
Despite the sharp reduction in workforces, firms depleted backlogs for the second month running. The modest pace of decline was little-changed from the prior month and considerably softer than the national trend. The slowdown in new business growth provided companies with additional time to finish existing work, according to qualitative reports.
The latest survey data pointed to a sharp uptick in the rate of input price inflation across the London private sector. Average input prices rose to the greatest degree in nine months. Survey respondents often highlighted the impact of higher staff costs on their expenses, as well as food price increases and the pass through of payroll costs at suppliers.
Cost inflation in the capital aligned with the trend observed across the UK. All 12 areas monitored by the survey saw a sharper increase in costs compared to the end of last year.
Output price inflation quickened in January, with the respective seasonally adjusted index rising for the fourth month running. Companies often attributed price hikes to the pass-through of food and salary inflation. The rise in charges was the fastest seen for ten months and much stronger than the series average.
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