Wednesday 6 April 2016

London businesses wary despite strong performance

Record number of companies investing in training and looking to recruit in past three month

Domestic orders balance rose by seven points to +13% - the highest recorded Capital 500 level

Export demand remained on an upward trajectory

London businesses' UK economic growth expectations for the next 12months drop

London businesses need a confidence boost after a new survey found low expectations despite some signs of growth. Results from London's largest regular business survey - the Capital 500 - indicate strong business performance in London, buoyed by growing domestic demand for goods and services.
However, perceived economic uncertainty means that the Government should act now to bolster business confidence, London Chamber of Commerce and Industry said as it published the first Quarterly Economic Survey report for 2016.
The quarterly survey of over 500 London business leaders, conducted by ComRes for LCCI in February, shows the overall balance figure for domestic sales is up two points to 11%.
The results show the highest recorded Capital 500 employment balance figures, a record number of companies investing in training and looking to recruit, as well as cashflow positions continuing on an upward trajectory.
However, business performance expectations for the next 12 months are in marked decline and an even more significant decline can be seen in London businesses' economic growth expectations.
Colin Stanbridge, Chief Executive of London Chamber of Commerce and Industry (LCCI) said:
"While London businesses' UK economic growth expectations have been in decline for the last three quarters, the first three months of 2016 saw the balance drop to its lowest recorded level and perilously close to a negative. The state of the global economy and uncertainty about the London Mayoral elections, as well as the forthcoming EU referendum, are among the factors contributing to overall uncertainty.

"Government can act to minimise uncertainty and boost opportunity. Investment in the suburban transport network would boost the Outer London area, while micro businesses would benefit from practical support to increase their online presence and recruit employees from outside the EEA to fill urgent skills gaps."

LCCI makes four key recommendations following the latest survey to help build London business confidence:

Recommendation 1: The new Mayor should establish a business panel focused on raising awareness of the benefits of developing an online presence among offline sole traders and small businesses, and encourage engagement with the London Digital Security Centre to ensure businesses are safe online.

Recommendation 2: The Government should establish a third party sponsorship route (London Visa) for established sector-specific organisations to support non-EEA worker visas on behalf of recognised small businesses.

Recommendation 3: The new Mayor should ensure that the transfer of responsibility for the management of London-bound rail services to TfL is rolled out as soon as possible and delivers real improvements in frequency and reliability.

Recommendation 4: At the Referendum, LCCI will not be campaigning either to Remain or to Leave. We urge both the Remain and Leave campaigns to present clear information and facts about each of their desired outcomes to assist London businesses to make an informed choice on 23 June.

Key findings from Capital 500 Q1 2016 survey include:

• Domestic demand: continued to improve during Q1 2016. On balance, 11% of businesses reported increased sales, up two points on last quarter. The domestic order balance figure rose by seven points to +13%, the highest recorded Capital 500 level
• Export demand: sales and orders balance figures reached their highest recorded levels. The export sales balance figure increased by 6 points to +10%, the export orders balance figure increased by 6 points to +9%. This is in marked contrast to a widening trade deficit at the national level in Q1 2016, as reported by ONS.

Labour market:

• Balance figure for employment levels rose to +9%, a six-point increase on last quarter.
• 14% of businesses, on balance, expected their workforce to increase in the next three months.

Recruitment and training:

• 22% of micro businesses and 51% of larger businesses were looking for new staff. An overwhelming majority of recruitment was for full-time positions (87%), up 33 points on last quarter.
• 58% of those looking to recruit encountered difficulties finding sufficiently skilled candidates, with micro businesses more likely to encounter challenges than larger companies.

Business costs:

• 19% of businesses, on balance, reported increases in the cost of domestic and international raw materials; international raw materials were up seven points on last quarter. This was followed by the pressure to increase wages, up six points on last quarter to +23%.
• The balance figures for energy and fuel costs have seen the largest long-term fluctuations.

Cashflow and investment:

• 9% of Capital 500 companies, on balance, reported an improved cashflow position. Following a decline in capital investment last quarter, in Q1 2016 investment levels (in plant and equipment) caught up with improved cashflow, rising by 9 points to a balance of +10%.
• There were significant differences by business size. While micro businesses reported a worse cashflow balance (+8%) than larger companies (+20%), the balance for capital investment was only slightly lower for micro businesses (+10%) compared to larger ones (+14%).

Business confidence:

• Expectations for company turnover and profitability have declined marginally from Q4 2015. On balance, 22% of businesses expected profitability to increase over the next 12 months and 27% felt the same about turnover
• After stabilising the previous quarter, business confidence levels dipped by 7 points, as only 17% of companies, on balance, expected their firm's performance to improve over the next 12 months - an all-time Capital 500 low, compared to a high of 32% in Q2 2014.

Economic outlook:

• At the lowest recorded level for two years, expectations for the UK and London economy continued to decline
• Starting the reporting period at +50% for the UK and +53% for London in Q2 2014, this quarter 2% of Capital 500 businesses, on balance, expect the UK economy to improve, 14% expect London's economy to improve

ENDS

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

NOTES TO EDITOR:
1. Colin Stanbridge is available for further comment and interview.
2. For over a decade LCCI has conducted a Quarterly Economic Survey (QES) to gauge business performance and general confidence levels across the capital. This is part of the longest running national private business survey, conducted by regional chambers of commerce across the UK every quarter.
3. 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.
4. ComRes interviewed 506 London business leaders between 1 and 22 February 2016. All data was weighted to be representative of all London businesses by company size and broad industry sector.
5. Comres is a member of the British Polling Council. Full data tables are available at www.comresglobal.com
6. The balance figures representative the percentage of firms that reported an increase minus the percentage that reported decrease.
7. Follow the discussion on Twitter using #Capital500