The London Growth Tracker from NatWest indicated a steady upturn in business activity across the capital in September.

The rate of activity growth was broadly unchanged at the end of the third quarter as firms continued to enjoy a robust increase in new business. Job creation was also resilient, contrasting with weaker hiring in other parts of the country. Meanwhile, optimism towards future activity climbed to its highest level since early 2022.

The headline London Business Activity Index – a seasonally adjusted index that measures the month-on-month change in the combined output of the region’s manufacturing and service sectors – posted 54.6 in September, up slightly from 54.5 in August. The reading signalled a robust expansion in business activity at the end of third quarter, which companies mainly related to improved client demand and higher overseas sales.

Catherine van Weenen, Territory Head of Commercial Mid Market at NatWest, said: “The capital remained one of the UK’s strongest-performing areas in terms of private sector business activity in September, despite registering slower growth than at the start of the year. Sales rose sharply, bolstered by rising demand from European and US clients. This paved the way for a further uptick in overall business confidence which is now at its highest since early 2022 and driven by firms’ willingness to invest in new products, staff and sales-building departments.

“Keenness to build workforces led to another solid increase in employment in September, although slower job creation nationwide amid a slight dip in growth could give some firms pause for thought. Wage costs remain a key factor delaying some hiring decisions, and a slight uptick in overall input price inflation shows that inflationary pressures may not quite yet be in the rear window.”
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Performance in relation to UK
London climbed into second place in the regional rankings in September (below Northern Ireland) and compared with a solid, but softer upturn in business activity across the UK as a whole.

The September survey data also pointed to robust demand conditions across London’s private sector economy at the end of the third quarter, with the pace of growth in new work intakes ticking up slightly from August. Survey panellists often commented on greater customer demand, including from European and US markets. Some companies added that an increase in staff numbers allowed them to secure greater volumes of new work.

London remained one of the top-performing regions of the UK in terms of new business growth, with only the South West registering a sharper uptick in September.

Stronger inflows of new work encouraged London-based firms in their assessment of future business output, with some claiming this had given them greater confidence to invest in new products, sales and marketing. The Future Activity Index rose to its highest level since February 2022 and was well above the UK-wide trend.

London companies added to their workforce levels for the fourth successive month during September. Furthermore, the pace of job creation continued to hold close to July’s 12-month high, thereby rounding out a solid quarter of growth. This came despite a notably weaker rise in jobs across the UK compared to one month previously.

A rise in employment coincided a further reduction in the level of unfinished work at London firms. Indeed, the latest decline was the fourth in as many months, with some panellists noting that having additional staff helped them to clear backlogs. The pace of depletion nonetheless eased since August and was modest overall.

Average selling charges at London-based businesses rose at a slower rate for the third month in succession. The seasonally adjusted Output Prices Index fell to its lowest level since July 2021 in September, albeit signalling a robust rise in charges that was stronger than the long-run trend. Higher charges were mostly linked to increases in wage and transport costs, as well as greater workloads.

Although still among the softest recorded in the past three years, the rate of input cost inflation quickened in September and was the sharpest since June. As well as wages and transport, panellists cited higher costs related to hospitality, financial services and raw materials.

Price trends closely matched those seen at the UK level in September, with London firms seeing a marginally quicker rise in costs.