Wednesday 30 November 2022 6:00 am | Updated: Tuesday 29 November 2022 1:13 pm

London businesses sweat over looming recession and sticky inflation

Going into the new year, forecasters have a healthy spread of opinion on the extent to which the UK will grow next year.

London businesses are sweating over the coming recession and sticky inflation, but they are still among the most confident in the UK, a new survey out today reveals.

Optimism among the capital’s firms slumped 27 points over the last month to 22 per cent, one of the biggest falls on record, according to Lloyds Bank’s business barometer.

Despite the huge drop, London firms are the second most confident in the UK, indicating they believe Brits will continue to spend during the economic slowdown.

However, those hopes may be blown out of the water. The Office for Budget Responsibility (OBR) reckons spending power will collapse just over seven per cent over the next two years, the biggest fall on record, forcing household consumption lower and driving an at least year long recession.

Businesses and consumers are being squeezed by inflation climbing to a 41 year of high of 11.1 per cent and there are concerns price rises will continue next year. The OBR reckons inflation will average 7.4 per cent in 2023.

Becci Wicks, regional director for London at Lloyds Bank commercial banking, said: “While it’s disappointing to see London firms’ confidence take a knock, overall they remain optimistic about their trading prospects and what the year ahead will bring.”

UK economy has softened over the second half of this year

London business confidence has tumbled on concerns about the health of wider UK economy. — Source: OBR

London companies still intend to ramp up hiring, with a net balance of 16 per cent stepping up recruitment drives. This figure is however down more than 20 points over the last month.

Overall UK business confidence dropped five points, a much flatter fall compared to London, down to 10 per cent.

Separate data from the Confederation of British Industry today found optimism collapsed in the UK’s services economy at one of the fastest paces on record over the three months to November.

Political turmoil sparked by Liz Truss’s ill-fated mini-budget engineering her downfall and sharp changes in fiscal policy from £45bn of unfunded tax cuts to £55bn of financial tightening have eroded optimism.

“Given the recent political and economic landscape, it comes as little surprise that economic optimism and business confidence have fallen this month,” Hann-Ju Ho, senior economist for Lloyds Bank commercial banking, said.