What London’s quarterly economic survey results say about Q3’s performance…
London Chamber of Commerce and Industry (LCCI) last week launched the Q3 2015 results of its London Quarterly Economic Survey with Capital 500. They surveyed 514 London business leaders between 18 August and 7 September this year.
The headlines of London’s performance in Q3:
- Domestic sales remain positive, unchanged from Q2;
- There has been an 8% increase in employment;
- There has been a decline in businesses looking to recruit, whilst the skills shortage continues to challenge those firms looking to grow;
- Businesses are experiencing increased cost pressures through the need to increase wages; and
- Business confidence is down, with just 33% expecting their companies’ prospects to improve over the next 12 months.
The message: a notable downscaling of expectations.
Commenting on these results at LCCI was Katharine Peacock, Managing Director, ComRes; Vicky Pryce, Chief Economic Adviser, CEBR; and Colin Stanbridge, Chief Executive, London Chamber of Commerce and Industry.
Katherine Peacock highlighted the relatively consistent metrics between Q2 and Q3. She pointed out that prospects are better for inner London companies than those based out of London; however “competition remains a common concern“. The low unemployment levels mean that wages have now overtaken the energy prices, increasing the cost pressures on businesses. She added that Q2 results reflected a post-election uplift in business confidence, which has since declined. “This dip in confidence can be recovered with limited impact, if it doesn’t last“, she said. “If it does, however, it could impact employment and then sales, revising the overall outlook.”
To explain the decline in confidence, Vicky Pryce stressed the need to consider the world economic outlook in order to understand what’s happening in London, stating that we are seeing a global slowdown in growth. Trade, which normally leads a recovery, is now lagging behind. “This is a credit constrained recession“, Pryce said, “banks don’t trust each other. Funding isn’t available as it was before and capital requirements are stricter.” She outlined how trade finance has suffered as a result of geo-political factors such as sanctions and a slowdown in emerging markets, including China, Brazil and Russia.
Pryce forecasted that interest rates will not rise until inflation does, predicting it will be mid-2016 before rates go up. “The world is becoming increasingly indebted” she said, as the consumer continues to fuel economic growth with rising UK house prices and an increase in food prices in Europe and the US. The consumer is empowered to spend through the low interest rates and a rise in average earnings, whilst it is businesses forced to supply these wages in the face of increasing competition that are being squeezed. The overall affect is a situation of unbalanced growth and unsustainable debt, a situation of “too much austerity at the wrong time“, according to Pryce.
This increased pressure on businesses, particularly SMEs, will require them to find different ways of supplying their product or service. As consumers’ disposable income increases, they are more inclined to spend, therefore those businesses targeting the consumer are the most likely to benefit, Pryce advised. “Be innovative in how you attract the consumer, and find different ways of supplying your product or service.”
The impending 2016 European referendum is also hanging over businesses. The current migration crisis may influence the public’s decision on the in/out vote, casting greater uncertainty over the outcome. Some suggested that it may make sense to delay the referendum until 2017 for a more balanced result. At this time of uncertainty, many businesses are likely to err on the side of caution, however it is “those who invest when others don’t who are likely to benefit“, said Pryce.
Colin Stanbridge reiterated LCCI’s recommendations that the Government must not impose further changes that limit companies’ ability to hire skilled workers from overseas, as London firms continue the struggle to fill the skills gap. He also highlighted the need for an increase in aviation capacity to allow businesses to “invest with more certainty“. LCCI’s recommendations based on these results can be found in their press release here.
We watch with interest the developments in Q4 and what they will mean for London’s economic outlook