Around six in ten London businesses expect the UK’ s economy to deteriorate over the next 12 months, according to LCCI’ s latest quarterly economic survey, the first conducted since the outbreak of the Iran war. Across the quarter, firms faced persistent inflationary pressures, rising operating costs and subdued investment, leaving many concerned about the prospects for growth amid a challenging economic and political backdrop.

Uncertainty

The findings come amid heightened uncertainty both at home and abroad. Growing domestic political turbulence and unpredictability about the future direction of government are adding to concerns among businesses already navigating a volatile global environment. This is reflected in firms’ perceptions of the

policy environment, with half expecting that the government’ s approach to the economy will worsen UK economic growth. Continued geopolitical tensions and fragile trading conditions are also weighing on outlook, creating a more challenging backdrop for firms seeking to invest, expand and plan for the future.

Pressures

These pressures are increasingly feeding through into firms’ day-to-day operating environment. Instability in the Middle East continues to place pressure on energy markets and supply chains, as more than half of London firms reported higher energy costs in the last quarter. Inflation remains the leading external concern, with 47 per cent of businesses more concerned about it than three months earlier, followed by competition, corporate taxation, and interest rates.

Recruitment

Sustained pressure is also impacting into recruitment activity, with hiring intentions remaining subdued across the capital. Just seven per cent of London firms expect to expand their workforce during the next three months. Overall, only 10 per cent attempted to recruit last quarter. Of those that did try to recruit, 61 per cent reported difficulties, particularly when filling professional and managerial roles and skilled manual or technical positions.

Expectations about growth prospects vary significantly by business size and, by extension, levels of exposure to economic volatility, with pessimism particularly evident among small businesses. Larger organisations are more than twice as likely as micro businesses to expect an improvement in London’ s economy in the next year.

" Larger organisations are more than twice as likely as micro businesses to expect an improvement in London’ s economy in the next year.

Rising costs

Commenting on the findings of the report, Karim Fatehi OBE, LCCI chief executive said that confidence remained weak while rising costs continue to restrict investment, recruitment and ultimately growth.“ Small businesses are being hit hardest. With less capacity to absorb these further costs, SMEs are increasingly being forced to postpone investment and hiring,