The rate of activity growth across London’s private sector accelerated in April, closing in on February’s 25-month high, despite a rapid increase in cost burdens.
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 – increased to 57.4 in April, from 54.2 in March, signalling a sharp and accelerated upturn in London business activity.
Companies attributed the expansion to a sustained increase in new order intakes and a resumption of activity following the slowdown recorded in March. A stronger increase in UK output was also recorded during the period, although the capital continued to vastly outpace the national trend.
Business confidence across London improved in April, although it remained considerably lower compared to the start of the year.
Despite this, inflationary pressures rose steeply to their highest level since late-2022, contributing to a further decline in staff headcounts.
Catherine van Weenen, NatWest’s Regional Managing Director, Commercial Mid-Market, London & South East, said:
“London businesses experienced an upsurge in output growth in April, suggesting conditions had been better than feared, with customers resuming normal activity, and enjoying a small surge in business confidence.
“Despite this, input price inflation rose to its highest level since November 2022, as a result of increased fuel, transport and material prices, and wage hikes. Output prices rose consequently, suggesting that companies had little room to absorb higher costs.
“Business activity continued to increase across the capital, despite another sharp fall in employment, indicating that firms are increasingly relying on productivity gains to support growth. The latest data signalled that capacity pressures remained muted, offering little prospect that labour markets will recover while the inflation spike persists.”
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Performance in relation to UK
Companies across the capital recorded a solid increase in new orders during April, marking the ninth consecutive month of expansion. The latest upturn quickened slightly from March, when the pace of growth had eased to its weakest in the current sequence. London firms typically attributed the rise in new work to winning new contracts and increased demand from existing clients at home and abroad, with some noting greater returns from recent marketing investments.
That said, several panellists reported a slowdown in sales linked to the Middle East conflict, citing reduced travel, slower decision-making, and increased cost-cutting among clients.
Business confidence across London ticked higher in April, although it remained considerably lower than the levels recorded in the opening months of the year. Firms widely anticipated long-term investments to support activity, though concerns over ongoing economic uncertainty persisted among the survey panel.
Businesses based in London continued to cut their staffing levels at the start of the second quarter. The pace of decline was sharp and the second-quickest across the UK, outpaced only by Wales.
The latest survey indicated that many London companies had retained hiring freezes, leading to the non-replacement of departing staff. Some firms meanwhile cited restructuring efforts linked to the minimum wage increase.
Meanwhile, the capital recorded a decrease in outstanding business for the first time in five months. According to anecdotal reports, greater order fulfilment efforts helped to lower backlogs. However, the rate at which total backlogs declined in April was only marginal and softer than the national average.
Local businesses saw another marked uplift in input price inflation during April. The seasonally adjusted Input Prices Index rose by nearly seven points to its highest level since November 2022. Rising cost pressures mainly reflected the impact of the Middle East conflict, although some respondents cited the minimum wage increase as a contributing factor.
The surge in inflation was closely aligned with the broader national trend, as all 12 monitored regions and nations recorded successive upticks in March and April. The rate of cost inflation across the capital was the second-slowest observed in April, just ahead of Scotland.
Output price inflation also accelerated across the London economy in the latest survey period. Businesses raised their charges to the greatest extent since October 2022, with survey respondents reporting that increases were implemented to pass on fuel surcharges and higher wage costs.