Thursday 12 January 2023

Increased costs pile pressure on firms to raise prices as businesses continue to be squeezed by torrid economic climate.

London Chamber of Commerce and Industry (LCCI) has today published the results of its Q4 2022 quarterly economic survey, the Capital 500, which seeks to gauge private sector performance and confidence levels among businesses of various sizes across the capital.

The latest survey, which interviewed 500 business leaders between 20 October and 9 November 2022, provides a stark insight into the astronomical costs London businesses are facing as they endeavour to face into relentless economic headwinds including inflation, rising interest rates and a tight labour market. Inflation remains the top concern for businesses, but 28% are now more concerned about business rates than they were three months ago. A further 39% of businesses identified that finance costs were putting pressure of them to raise prices, and more than half (52%) of London firms expect to raise the prices of their goods and / or services in the next three months.

Businesses of all sizes are also facing acute pressure to raise wages as the cost-of-living crisis worsens. Nearly half (47%) of micro firms said the pressure to increase wages had grown, while four-fifths (79%) of businesses with 10 or more employees said there was pressure to increase salaries. Consequently, just under half (48%) of London firms of all sizes say they are under pressure to raise their prices as a result of increased labour costs. Cost increases were also felt keenly elsewhere. 79% of businesses said their energy costs had risen in Q4, while seven in ten (70%) said their fuel costs had increased during the same period. Borrowing costs climbed further in Q4, with two in five (43%) reporting an increase in the past three months.

Perhaps unsurprisingly, the outlook for 2023 is a pessimistic one with more than half of London’s firms predicting that the capital’s economy will worsen this year. A majority of both micro (52%) and larger (54%) companies think London’s economy will decline over the next 12 months, although there was a clear geographical divide between outer and inner London firms. Nearly three-in-five (57%) outer London businesses were pessimistic about the capital’s economic prospects, which was a higher proportion than their inner London counterparts (48%).

Richard Burge, Chief Executive of London Chamber of Commerce and Industry (LCCI), said:

“Businesses continue to operate at a perilous time for the UK economy and are making every effort to overcome the challenges thrown their way. Time and again London businesses demonstrate their resilience when faced with adversity and they will be crucial to driving an eventual economic recovery, but it would be naïve to say they are not in need of support. London’s economic recovery is dependent on the government delivering favourable conditions for growth, macroeconomic stability and shared prosperity in the longer-term. We urge the government to meaningfully engage with the business community to ensure the ambition to build a better future for Britain is realised.”

Key findings from the Q4 2022 Quarterly Economic Survey: 

Businesses are facing enormous cost pressures:

• Inflation remains the top concern for businesses, but 28% are now more concerned about business rates than they were three months ago.
• Two in five businesses (39%) identified that finance costs were putting pressure of them to raise prices and as a result of rising costs.
• More than half (52%) of London firms expect to raise the prices of their goods and / or services in the next three months.
• 79% of businesses said their energy costs had risen in Q4, while seven in ten (70%) said their fuel costs had increased during the same period.
• Borrowing costs climbed further in Q4, with two in five (43%) reporting an increase in the past three months.

Businesses of all sizes are being urged to raise wages as the cost-of-living crisis worsens:

• Nearly half (47%) of micro firms said the pressure to increase wages had grown, while four-fifths (79%) of businesses with 10 or more employees said there was greater pressure to increase salaries.
• Just under half (48%) of London firms of all sizes say they are under pressure to raise their prices as a result of increased labour costs.

The outlook for 2023 is pessimistic one with more than half of London’s firms predicting that the capital’s economy will worsen this year:

• A majority of both micro (52%) and larger (54%) companies think London’s economy will decline over the next 12 months.
• There was a clear geographical divide between outer and inner London firms. Nearly three-in-five (57%) outer London businesses were more pessimistic about the capital which was a higher proportion than their inner London counterparts (48%).

There was an encouraging rise in company cashflow:

• The net balance for cashflow rose for the first time in five quarters, from -14 to -9 in Q4 2022, with 24% of companies noting an increase compared to Q3: this was up from 20% in the previous Capital 500. This was likely due to a significant rise in the number of firms who said they were operating at full capacity in Q4 (from 38% to 50%).
• In a similar trend to domestic sales, the change in cashflow was driven by inner London companies. 27% said cashflow had increased in Q4, up from 21% in Q3, and there was a smaller proportion noting a decline in cashflow.

Despite the torrid economic climate, the intent to recruit remained strong among businesses but firms struggled with the process:

• In the final three months of 2022, recruitment activity continued its steady rise with a quarter (24%) of firms having sought to hire – a new Capital 500 record.
• Around two-fifths (43%) of London firms who were looking to recruit were trying to fill current gaps in their workforce, while close to three in ten (28%) were trying to fill new roles.
• However, in another new record for the Capital 500 the vast majority of London businesses who tried to recruit in Q4 had difficulties doing so (71%). Specifically, business reported it was more difficult to recruit for professional or managerial roles than for un/semi-skilled or clerical roles.

There was a small but surprising uptick in business confidence:

• Despite the external headwinds such as the cost of doing business crisis, a looming recession, and the continued war in Ukraine, the net balance for turnover expectations nudged up from 8 to 10, with 37% anticipating an increase in turnover in the next 12 months.
• Firms were marginally more upbeat about their own company prospects in Q4, with a quarter (25%) of businesses expecting their company outlook to improve over the next 12 months.
• However, the timing of the most recent survey is significant as the fieldwork was carried out immediately after Liz Truss’ resignation as Prime Minister on 20 October but prior to the Autumn Statement on 17 November and the subsequent announcement of significant industrial action in the run up to Christmas. This combination of factors could have contributed to a premature restoration of business confidence in the capital.

The full report is available to view here.

ENDS

Contact:

London Chamber Press Office

T: +44 (0)20 7340 0396
M: +44 (0)7827 241528
E: press@londonchamber.co.uk

Notes to editors:

Savanta surveyed a total of 500 London business leaders between 20 October and 9 November 2022. All data were weighted to be representative of all London businesses by company size and broad industry sector. Savanta is a member of the British Polling Council and abides by its rules. Full data tables are available at www.savanta.com.