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London business confidence looks to be finally shaking off the Brexit gloom

Confidence among London’s businesses looks to be finally rebounding after a gloomy 12 months following the EU referendum.

According to the Institute of Chartered Accountants (ICAEW) business confidence monitor, business confidence registered a score of +5.3 for the quarter according to their metrics a significant improvement on the -11.4 registered in the previous quarter.

This still compares unfavourably to the +6.7 registered across the rest of the UK but hints that the city’s businesses and business leaders, who look to potentially suffer an outsize impact from any bad Brexit deal, were finally feeling more positive about their prospects.

Fuelling this sentiment were an expected 4.2% increase in domestic sales and a 3.7% increase in export sales, with the continued weakness of sterling making the UK market an enticing one for international buyers.

Elsewhere in the report, businesses are expecting a 5.1% increase in profit growth driven primarily by an increase in sales volumes rather than prices while capital investment expectations increased by 2.8% year-on-year.

The figures mark an end to a four quarter streak of declining business confidence which Andrea Dunhill, ICAEW London Director described as ‘encouraging’ signs that confidence in the capital may have turned a corner.

She commented: “It’s encouraging to see that business confidence in London is positive for the first time in over a year. Profit growth is expected to rise, but is likely due to a pick-up in sales volumes rather than price rises, which is certainly good news for consumers in the capital.

“Export sales are also expected to improve as businesses in London begin to take advantage of weaker sterling.”

Bad deal or no deal

Despite the heartening data, there is still an element of ‘wait and see’ from London businesses with regards to the Brexit negotiations, with many claiming they plan to keep their overall costs in check by holding wage growth and staff development at a rate below inflation.

While this may be an effective way to hedge their bets against any political or economic turmoil that may arise during the tumultuous two-year negotiations, they gesture towards prevailing jitters about how things might play out.

The tactic is also an unsustainable one, with slowing wages and a stagnating workforce likely to drag on the economy in the long-run.

Dunhill added: “Yet against improved sentiment, businesses are not investing in staff and wages and may well be waiting to see what happens in the political arena, particularly in relation to how EU negotiations play out.”