Business confidence in London fell 12 points during January to 46% but remained among the highest of all UK regions and nations, 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 12 points at 51%. When taken alongside their optimism in the economy, down 13 points to 40%, this gives a headline confidence reading of 46%.

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

A net balance of 36% of businesses in the region expect to increase staff levels over the next year, down 17 points on last month.

Overall UK business confidence remained steady in January, dropping just one point from December’s reading of 40% to 39%. Firms remained positive about their future trading prospects, despite a two-point dip month-on-month to 41%, and were optimistic about the economy overall, reporting a reading of 38%, up one point on December’s result. The net balance of businesses planning to create new jobs in the next twelve months decreased marginally by four points to 29%.

Every UK nation and region maintained a positive overall confidence reading in January, with four reporting a higher reading than last month. Yorkshire and the Humber (up 13 points to 48%), Scotland (up 13 points to 37%), the West Midlands (up nine points to 39%) and the South West (up eight points to 37%) all had stronger confidence readings month-on-month, with Yorkshire and the Humber now the most optimistic region.

Becci Wicks, regional director for London at Lloyds Bank Commercial Banking, said: “Despite London business confidence taking a hit this month, the city’s firms are still starting the year with one of the most positive outlooks in the UK.

“Of course, challenges remain, not least with rising prices and the ongoing effects of the pandemic being felt by many. The region’s hospitality sector in particular has struggled in recent months with reduced demand and will be looking forward to workers returning to the city and taking advantage of its pubs, cafes and restaurants.

“Whatever lies ahead, we will remain by the side of London businesses to help them continue to navigate challenges with confidence.”

Industry sector performance was mixed during January with confidence among manufacturers increasing by three points to 43%, reaching its highest level for three months due to an easing of supply chain pressures. Retail confidence also rose (up one point to 44%) while confidence among firms in IT/communications remains particularly strong at 72%.

The impact of Omicron over the festive period meant the service sector extended its recent run of modest decreases in January, dropping one point to 38%. Positively, hospitality has recovered some of December’s decline, rising from 6% to 38%.

Hann-Ju Ho, senior economist for Lloyds Bank Commercial Banking, said: “January’s survey shows a continued resilience with minimal fluctuation as economic optimism remains at a historically strong level.

“A larger decline in confidence was potentially prevented by the reduction in Covid infection rates from early January and the prospects of the easing of restrictions across the UK.

“However, businesses remain cautious about the pandemic and are facing into challenges from rising cost pressures although many are raising their prices in response.”