London businesses remain cautiously optimistic about their profitability and turnover prospects in 2025, despite mounting cost pressures and concerns over recent Budget policies, according to the Capital 500, London’s quarterly economic survey conducted by the London Chamber of Commerce and Industry (LCCI).
Nearly half (48%) of businesses in the capital expect their turnover to grow in the next 12 months, meaning the net balance for turnover – the percentage of firms that expect turnover to increase minus the percentage that expect it to decrease – rose 4 points to +33. Businesses also remain cautiously optimistic about their profitability outlook. The net percentage of businesses expecting their profits to increase in 2025 rose to +32, a two-point increase from Q3 2024. Nearly half (48%) of businesses expect their profitability to rise over the next year.
However, optimism varied by business size. Profitability expectations among micro firms (0–9 employees) increased from +25 in Q3 to +31 in Q4, while larger firms (10+ employees) reported a more cautious outlook, with expectations falling from +59 to +52 in the same period.
Despite this cautious optimism, economic confidence has decreased markedly. The net balance for confidence in overall company prospects fell from +29 in Q3 to +15 in Q4, marking the lowest figure recorded since 2023. While businesses remain optimistic about their own prospects, confidence in the overall UK economy for 2025 has plummeted. Predictions for economic health took a sharp 23-point drop in Q4 to -4, reflecting growing concerns about measures announced in the Autumn Budget and the Employment Rights Bill. Only 31% of businesses now believe the UK economy will improve over the next 12 months, a stark reminder of the uncertainty that businesses face heading into the new year.
Inflation continues to be the primary concern for London businesses. More than half (57%) of respondents identified inflation as more of a concern in Q4 2024 than in the previous three months. Rising energy and fuel costs also remain a significant burden, with 61% of businesses reporting higher energy costs and 50% citing increased fuel costs during the last quarter.
Finally, firms continued to report a stagnant labour market and workforce. Although more than a tenth (14%) of firms said their employment levels had grown in the previous three months (broadly consistent with 13% in Q3), there was a larger share of companies who said their workforce size had decreased (18% in Q4; 14% in Q3).
Other key findings:
- Domestic demand dropped off slightly in Q4, according to London businesses. The net balance for domestic sales – the percentage of firms reporting an increase minus those reporting a decrease – contracted from +6 to +4 in Q4 2024.
- Firms saw mixed results in domestic orders in Q4. The net balance for orders decreased by 6 points to -4, with 21% of businesses reporting a rise.
- One in eight (12%) London firms said their export sales had risen in Q4, up slightly from 10% in Q3. The proportion of companies reporting a decline in export sales also remained broadly consistent (10% in Q4vs. 9% in Q3).
- 11% of London businesses reported an increase in export orders last quarter.
- 31% of London businesses expected their workforce size to increase over the coming three months.
- 30% of London businesses reported that they had looked to recruit in the last quarter. 24% of London businesses reported an increase in investment in training last quarter.
- However, the proportion of businesses that lowered investment in training also increased slightly from 9% in Q3 to 12% in Q4.
- Almost two-thirds (61%) of companies said their energy costs had risen in Q4, up from 52% in Q3. Just 3% of London firms said their energy costs had fallen over the previous three months in Q4, down from 8% in Q3.
- In Q4, around half (46%) of firms said they expect the prices of their goods and/or services to increase in the coming three months, up from 37% in Q3.
- Three in ten (29%) London firms said their cashflow had increased in Q4, the same as in Q3. The percentage of businesses that reported a decline in cashflow increased slightly from 26% in Q3 to 28% in Q4.
- 20% of firms reported an increase in investment in plant and equipment in Q4 2024. However, the percentage of firms reporting a decline in plant and equipment investment increased from 10% in Q3 to 16% in Q4.
Commenting on the findings of the report, Karim Fatehi OBE, Chief Executive of the London Chamber of Commerce and Industry (LCCI), said: “2025 will be a year of cautious optimism for London businesses emerging from the volatility of an election super-year. While firms are confident about their own profitability outlook, concerns over the broader UK economy persist due to rising costs, disappointing fiscal policies, and ongoing labour shortages.
“To drive long-term growth, the Government must address business concerns around rising employer costs, reduced business rates relief, and the Employment Rights Bill. Stability, certainty, and supportive policies are crucial for London’s businesses to invest, innovate, and contribute to the UK’s prosperity.”
