Small Business Confidence in London Hits Historic Low

Confidence among small businesses in London has plummeted to its lowest point outside of the pandemic era, with several sectors experiencing unprecedented levels of pessimism. According to a new report by the Federation of Small Businesses (FSB), small firms in the capital reported a confidence level of just 62.6 in the fourth quarter of 2024, a sharp drop from the negative 1.2 points recorded in the previous quarter.

This represents the worst recorded drop in confidence for small businesses in London, with broader business confidence in the UK economy at 40.1 points. London's small firms were the hardest hit, with their outlook sinking far below the national average.

Among the sectors, confidence in the accommodation and food services industry was the lowest, plunging to an all-time low of negative 111 points. Wholesale and retail sectors followed closely with negative 94.2 points, while firms in professional, scientific, and technical activities were the least pessimistic, although still reporting negative confidence at negative 40.1 points.

The construction sector saw the most significant decline in confidence, with a sharp fall from negative 26.6 points to negative 76.8 points between the third and fourth quarters of 2024.

The FSB report identified several key barriers to business growth, with the domestic economy once again being the top concern for small firms, cited by most respondents. However, tax burdens have emerged as a new pressing issue, with 43% of businesses highlighting it as a significant challenge. Labour costs, which were the third most cited barrier, are particularly concerning for the UK as a whole (42%) compared to London (31.5%).

Interestingly, consumer demand, which typically ranks among the top barriers, fell to fourth place, with only 28% of small businesses citing it as a concern. This shift suggests that businesses are more focused on macroeconomic issues than on consumer behavior at present.

Looking ahead, the FSB forecasts a "subdued" growth outlook for small businesses in 2025, with fewer firms expecting to expand. Only 43% of businesses expect growth over the next 12 months, down from over half in the previous survey.

Tina McKenzie, FSB’s policy chair, emphasized the urgency of the government’s growth agenda, stating that the challenges facing small businesses underline the need for immediate action. McKenzie pointed to the upcoming Employment Rights Bill as a source of significant stress for small firms, with 90% of small businesses expressing concern over its potential impact.

McKenzie called for the Spending Review, which concludes in June, to prioritize initiatives that will drive small business growth. Additionally, she urged the government to include a Small Business Bill in the King’s Speech later this year to streamline support and provide the necessary reforms to foster entrepreneurship and help small businesses thrive.