Thursday 7 July 2016

Government needs to address negative business mood

The Government needs to act swiftly and decisively to bolster business confidence, a new survey from London Chamber of Commerce and Industry (LCCI) has found.

Results from the largest regular business survey - the Capital 500 - have found that business performance declined during Q2 2016, with sales, cashflow and domestic orders moving into negative territory.

Expectations for the year ahead were equally pessimistic. Business confidence indicators declined for the second consecutive quarter, while there is now a greater proportion of Capital 500 businesses who expect the UK economy to decline than to grow.

Chief Executive of London Chamber of Commerce and Industry Colin Stanbridge said: "Even before the vote, when surveyed the business mood was clearly affected by the uncertainty around the referendum. Now, given the result of the referendum and the lack of clear leadership within political parties, it is even more important that the Government moves quickly to maintain confidence and minimise economic insecurity.

"As ministers now contemplate the UK's future outside the EU, London's new mayor, Sadiq Khan, needs to be involved in that planning - to help harness the resources necessary to sustain long-term economic growth.

"Government must look to maintain the capital's position as world-leading place to do business. That means having the pull factors that will attract global companies to invest and locate in London whether that is around business environment, strategic infrastructure or skilled staff. We need to turn the result of the referendum into a time of opportunity for Britain".

LCCI makes four key recommendations following the latest survey to help the Mayor and the Government rebuild London business confidence:

- Recommendation 1: The new Mayor of London should pursue his pre-election commitment to champion London industry at home and abroad by leading trade missions with London businesses to foster new trade links and attract more global investment to London.
- Recommendation 2: The Mayor could help facilitate the entry of more smaller builders into the house-building industry by establishing a Small Developers Panel to examine planning red-tape and optimise potential of smaller sites identified by London Land Commission.
- Recommendation 3: The Mayor of London should consider what targeted support could help London businesses that will face significant business rates increases in 2017.
- Recommendation 4: The lead-up to the EU Referendum effectively saw government 'on-hold' and many big decisions delayed. In the post referendum period the Government should prioritise a final decision on a new runway for the London airports system.

Key findings from Capital 500 Q2 2016 survey include:
- Domestic demand declined considerably during Q2 2016, resulting in a greater proportion of businesses reporting a decrease than an increase in both domestic sales and orders. There has been a 12 point fall in the balance for domestic sales since last quarter, now in negative territory.
- Export demand also declined, but despite falls in both export sales and orders, both balance figures remained in positive territory. On balance, 3% of businesses reported increased export sales, down 7 points on last quarter, and 5% reported improved export orders, down 4 points on last quarter.

Labour market:
- Following four consecutive quarters of growth, employment levels dropped during Q2 2016, with 2% of London businesses, on balance, reporting increased employment.
- Expectations for the next quarter were also subdued and dropped by 5 points from +14% in Q1 2016, the highest recorded Capital 500 level.
Recruitment and training:
- On balance, 4% of businesses increased investment in training, down 11 points on last quarter.
- Of the 17% of companies looking to recruit, a majority (54%) encountered difficulties finding sufficiently skilled candidates.

Business costs:
- The cost factor that most companies, on balance, reported as having increased was the pressure from employees to increase wages (+19%). Areas in which cost rises were, on balance, reported least often were energy (+11%) and borrowing (+10%).
- The balance figures for the cost of raw materials sourced domestically and internationally declined to +18% and +14% respectively.

Cashflow and investment:
- London businesses' cashflow position worsened considerably during Q2 2016. The balance figure for cashflow was down 11 points on last quarter, with 2% of London businesses, on balance, seeing their cashflow decrease.
- Inner London businesses saw their cashflow balance decline by 13 points to +3%, and their investments in plant and equipment by 10 points to a balance of +8%; Outer London businesses, in contrast, reported a drop of 6 points (to a balance figure of -6%) for cashflow, and a drop of 1 point (to a balance figure of +2%) for capital investments.

Business confidence:
- On balance, 13% of businesses expected their overall company prospects to improve, down 4 points on last quarter to a Capital 500 record low. Profitability expectations also dropped to a new low, with 17% of businesses, on balance, predicting an improvement, down 5 points on last quarter.
- Turnover expectations remained somewhat higher, as 24% of businesses, on balance, expected an improvement, down 3 points on Q1 2016.

Economic outlook:
- Already at their lowest recorded level in the last two years, expectations for both the UK and London economy continued to decline - now for the fourth consecutive quarter.
- Micro businesses continued to be particularly negative about the UK's economic prospects, resulting in a -7% balance figure, compared to +7% for larger businesses.

ENDS

Media contact
Katharine McGee
T: +44 (0)20 7203 1897
M: +44 (0)7827 241528
E: kmcgee@londonchamber.co.uk

NOTES TO EDITOR:
1. Colin Stanbridge is available for further comment and interview.
2. Since Q2 2014, LCCI has partnered with ComRes, to expand the survey beyond LCCI membership to poll a panel of London businesses - the Capital 500 - that are fully representative of the London economy by business size and broad industry sector. Data on the highest recorded levels refers to Capital 500 data over the last two years.
3. ComRes interviewed 508 London business leaders between 16 May and 06 June 2016. All data was weighted to be representative of all London businesses by company size and broad industry sector.
4. ComRes is a member of the British Polling Council. Full data tables are available at www.comresglobal.com
5. The balance figures representative the percentage of firms that reported an increase minus the percentage that reported decrease. You can find the full report here.