Confidence at London-based firms improved in May after April’s dip, as fears around tariffs subsided.
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 – fell from 49.7 in April to 49.5 in May, indicating a mild contraction in output levels for the second consecutive month.
Lower output was often associated with a drop in sales, as tight client budgets and greater economic uncertainty led to a weakening of demand conditions and greater slack in capacity.
That said, the rolling back of some US tariffs helped to offset part of the decline and boost confidence for future output.
Sebastian Burnside, NatWest Chief Economist, said: “The London Growth Tracker continued to signal challenges for the capital’s private sector in the second quarter of 2025.
“Demand for goods and services fell, reflecting the impact of economic uncertainty and increasing prices. Demand weakness was widespread across the UK in May, with Wales being the only region to see an upturn in new orders.
“We did see the rate of output price inflation ease considerably in May, which may help to soften this downturn if consumers can recoup spending power.
“It’s encouraging to see growth expectations bounce back, indicating that some of the worries attached to the global economic backdrop have cooled. Businesses in the capital highlighted long-term investments and plans to integrate new technologies as central to their growth strategies.”

Performance in relation to UK
London was one of six regions monitored in the UK to record a contraction in output during May, as the latest data revealed mixed performances across the nation.
London-based companies registered a decline in new business for the second month running in May. The reduction was modest, but the fastest seen in over four years. Moreover, the rate of contraction was broadly aligned with the national trend. Panellists signalled that heightened economic uncertainty led to a decrease in new orders, particularly from US customers.
Despite this, expectations regarding future activity recovered sharply from April’s two-and-a-half-year low. In line with the trend seen across the UK, the degree of optimism was close to the level recorded in March prior to the announcement of blanket US tariffs on April 2.
Some companies in the capital mentioned that a calming of financial markets was part of the reason for the rise in expectations, alongside greater business investment, product releases and the integration of new technologies. That said, a number of respondents remained cautious, commenting on macroeconomic headwinds and sustained uncertainty about US trade policy.
May saw a further drop in employment levels across the London private sector. Lower activity and rising wage bills led to additional restructuring and limits on rehiring, according to panellists.
The pace at which staffing numbers fell in London was the same as that observed across the UK during May. However, the downturn did soften slightly from the previous month.
Employment cuts came at the same time as an increase in spare capacity. This was indicated by a stronger drop in outstanding business at London companies, which was the quickest recorded since August 2023. Nevertheless, it was still among the slowest seen out of the monitored UK regions.
Average prices charged by London businesses increased at a much slower pace in May compared to the prior survey period. The rate of inflation remained sharp and above the long-run trend, but eased to its lowest level since October 2024. Firms generally suggested they were finding it harder to raise prices without damaging client confidence and sales, although additional staff costs often necessitated higher charges.
The rate at which overall input costs rose was elevated in May, despite cooling slightly from April’s 20-month record. Where a markup was seen, panellists mainly attributed this to the impact of higher national insurance contributions and national minimum/living wages. In terms of input price inflation, London was closely aligned with the nationwide average.