Business confidence in London fell 14 points during December to 8% – the lowest reading in the city for more than twelve months – according to the latest Business Barometer from Lloyds Bank Commercial Banking.

Companies in the capital reported lower confidence in their own business prospects month-on-month, down 21 points at 16%. When taken alongside their optimism in the economy, down six points to 1%, this gives a headline confidence reading of 8%.

London businesses identified their top target areas for growth in the next six months as diversifying into new markets (36%), evolving their offer (30%) and investing in sustainability (30%).

The Business Barometer, which surveys 1,200 businesses monthly, provides early signals about UK economic trends both regionally and nationwide.

A net balance of 8% of businesses in the region expect to increase staff levels over the next year, down eight points on last month.

Overall UK business confidence rose seven points during December to 17%. The proportion of businesses that felt positive about the wider economy was up 10 points month-on-month to 8%, while their outlook on their own future trading prospects increased by two points to 27%. Businesses also remained optimistic about job creation, with 16% of firms planning to hire more staff in the next 12 months – up two points on November.

All UK regions and nations reported a positive confidence reading in December, for the first time since July, with eight out of 11 recording a month-on-month increase in confidence. Of those, the North West (up 31 points to 40%), North East (up 24 points to 34%) and South East (up 23 points to 14%) saw the largest monthly increases, with the North West now the most optimistic overall.

Becci Wicks, regional director for London at Lloyds Bank Commercial Banking, said: “Confidence among the capital’s firms has taken a hit, but it remains in the black as we wrap up what’s otherwise been a stellar 2022 for firms who’ve battled relentless headwinds.

“And it’s encouraging to see that businesses are already working to identify gaps in their offering and planning to break into new markets, with firms in London targeting growth in these ways more than in most other regions. Unlocking these opportunities will likely require investment, and we’ll be by their side to assess the funding options that will help unlock potential growth in 2023.”

The manufacturing sector reversed a six-month trend of falling confidence, with a nine-point rise to 13%. Confidence in construction and services also increased by nine points to 29% and 18% respectively. However, retail confidence fell slightly, by two points to 13%.

Hann-Ju Ho, senior economist for Lloyds Bank Commercial Banking, said: “Business confidence has received a boost in the run up to Christmas as firms anticipate a better festive trading period than last year. While firms report being hopeful for a more successful 2023, inflation and the risk of an economic downturn remain the biggest concerns for businesses, with rising costs evidenced by the number of firms expecting to raise prices.

“Wage growth is expected to remain high for now as retaining existing staff and attracting new talent will continue to be priorities for many businesses going into next year.”