Tuesday 2 April 2019

Both domestic and export sales declined during the first quarter of 2019 as Brexit uncertainty hit London’s businesses, new figures released today show.

The figures come from London Chamber of Commerce and Industry’s ‘Capital 500’ Quarterly Economic Survey - the biggest and most representative survey of London’s businesses. It is the first time since the establishment (in 2014) of the Capital 500 that both export orders and sales have been negative. While domestic demand figures have now been in negative territory for seven consecutive quarters.

Business confidence indicators fell further, to their lowest level to date. Yet the Capital 500 employment balance increased 3 points this quarter – despite 63% of companies that tried to recruit in the past three months encountering difficulties doing so, particularly for skilled manual/technical roles. The desire to increase workforce numbers continues into the next quarter.

Sean McKee, Director of Policy and Public Affairs, London Chamber of Commerce and Industry, said:

“The figures for the first quarter of 2019 show the impact of Brexit uncertainty on London’s economy, with both domestic and export sales in negative territory.

Employers have encountered significant difficulties recruiting, further driving the desire for businesses to find the skilled employees they need in the next quarter. The importance of the right post-Brexit immigration system is abundantly clear, as is the need for certainty on the UK’s future trading relationship with the EU.”

Headline figures for Q1 of 2019 also show:

• Increasing wage pressures and increased investment in training.
• Cashflow levels falling to a record low, at -14%.
• Decreased investment in plant and equipment.

Full results for the first quarter of 2019 show:

Domestic and export demand:

• The domestic orders balance dropped by 4 points on last quarter, while the domestic sales balance also fell by 2 points, as more businesses recorded a decrease than an increase in both areas – resulting in a seventh consecutive quarter that both figures have been negative.
• Both export demand figures fell in Q1 2019, causing each of them to turn negative. Export orders fell by 3 points, with export sales falling by 4 points. This is the first quarter since the start of the Capital 500 that both export figures have been negative. Furthermore, this is the joint lowest Capital 500 level for export orders and the lowest level for sales.

Labour market:

• The Capital 500 employment balance increased by 3 points, its joint largest uptick since Q1 2017. That said, the figure remained in negative territory at -2% and has been negative for 11 consecutive quarters.
• The figure for employment expectations experienced an increase of 4 points, its joint second highest upsurge in a single quarter since the start of the Capital 500.

Recruitment and training:

• The percentage of firms looking to recruit increased 3 points on last quarter, rising to 15%.
• Of those that did try to recruit, 63% encountered difficulties, up 5 points on Q4 2018.
• Skilled manual/technical roles proved the hardest to fill, with 52% of firms facing difficulties recruiting in this area, while 44% had problems recruiting for professional and managerial roles.
• The figure for companies looking to invest in training increased by 1 point.

Business costs:

• The balance figure for the amount of businesses who expected to raise their prices over the next three months rose by 2 points this quarter.
• Around a fifth of businesses cited finance costs (21%) and raw material prices (19%) as pressures on them to increase prices, while a third said other overheads (32%).
• The balance figure for the cost of wages went up by 2 points.
• The figures for the cost of raw materials sourced domestically and raw materials sourced internationally both dropped by 2 points.
• The balance figure for the cost of energy increased by 1 point (to +38%), while the cost of fuel dropped by 11% (to +35%), its largest decrease since Q2 2017.

Cashflow and investment:

• Q1 2019 saw the cashflow balance figure fall further into negative territory, dropping by 4 points on last quarter. This is despite the fact that last quarter fell by 8 points. The figure has now dropped to record Capital 500 lows in two consecutive quarters.
• Due to a 3 points decrease, the balance figure for companies investing in plant and equipment also fell into negative territory.

Business confidence:

• For the second consecutive quarter, all business confidence indicators fell. As a result, each business confidence indicator is now at its lowest Capital 500 level to date.
• For the first time since the start of the Capital 500, more businesses expect their turnover to decrease than increase, with the turnover balance figure falling to -2%. This was also the largest decrease in the figure since the quarter immediately after the EU referendum.
• The balance figure for overall company prospects also fell by an additional 2 points on last quarter. The profitability expectations balance figure reached its lowest ever Capital 500 level at -4%.

Economic outlook:

• In Q1 2019, expectations for both the London and UK economy both fell to their lowest recorded levels since the start of the Capital 500. The figures have now been negative for eleven and twelve respective quarters. The balance figure for expectations of the UK economy fell by 8 points to -42%, meaning on balance, more than two in five London firms expect UK economic growth to worsen over the next twelve months.

The Capital 500 is the largest and most representative business survey in London. Between 13 February and 11 March ComRes surveyed 571 business leaders regarding the first quarter of 2019.

LCCI makes four key recommendations following the latest survey to help the Mayor and the Government ensure London businesses can feel better equipped for the future:

1. London will need greater powers to accommodate forecasted population growth. Retaining more of London’s generated taxes and securing new competencies would ensure the Office of Mayor has the resources to drive and deliver future growth.
   With the next Mayoral election one year away, indications from the main candidates on their views about more devolution would be welcome.
2. Government, and the Mayor of London, should initiate an ongoing dialogue with London’s main business organisations to explore how to encourage more of the capital’s businesses (especially SMEs) to exploit export opportunities in new and established markets.
   
   This could include options such as subsidised trade missions or access to trade facilitation services. Consideration should be given to enhanced promotion, and better utilisation of, the network of UK embassies and consulates as well as offices run by the Mayor in a dozen cities abroad including those in China, India and the USA. These could be valuable hubs providing visiting London firms with practical advice, local knowledge and other support services.
3. The undersupply of housing has had multiple impacts on the capital. The current Examination in Public (EiP) of the new London Plan provides an opportunity to examine how to enhance London’s resilience, especially as 56% of ‘blue-light’ emergency services workers now live outside the city they serve. The Mayor should consider a limited intervention, with suitable safeguards, to make better use of poor quality and undesirable land within the metropolitan green belt to help house police, fire and paramedic staff.
   
   City Hall assuming an ‘owner-landlord’ position for rental housing stock for ‘blue-light’ emergency services staff would help improve resilience and potentially offer a steady revenue stream for the GLA.
4. While broadly supportive of the Mayor’s drive to improve the capital’s air quality, City Hall has to be sensitive to the likely impacts on London businesses. Micro and smaller businesses may find it challenging to upgrade to a newer vehicle. Additional costs may affect smaller businesses decision-making on matters such as location or passing on costs. The Mayor should consider the call to issue ‘advisory’ rather than ‘enforcement’ notices in the early months of the ULEZ scheme for London’s micro and small businesses, while at the same time enhancing efforts to communicate the scheme’s operation and its aims to a wider business audience.

ENDS

Media contact
Steven Reilly-Hii
T: +44 (0)207 203 1897
M: +44 (0)7827 241528
E: sreilly-hii@londonchamber.co.uk

NOTES TO EDITOR:

1. London Chamber of Commerce and Industry (LCCI) is the capital’s most representative business organisation, with members ranging in size from multi-national companies to SMEs and sole traders
2. Data were weighted to be representative of all London businesses by company size and broad industry sector. ComRes is a member of the British Polling Council and abides by its rules. Full data tables are available at www.comresglobal.com.