London firms optimistic about the economy but roads continue to be a problem

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The majority of London’s businesses feel much more optimistic about prospects for the economy over the next six months, according to the CBI/KPMG London Business Survey published today. This is a substantial increase on the last quarter and the highest level of optimism recorded since the end of 2010.

The majority of the capital’s firms are also optimistic about the prospects for their business over the next six months and over two-thirds have plans to expand over the next year, with a slight increase in the number looking to do so in London.

However, the capital’s roads continue to be the main concern for business with a majority saying the roads are getting worse or much worse. London’s businesses are enthusiastic about new ideas to improve the capital’s road network, expressing support for greater flexibility for freight, including trialling out-of-hours deliveries, and building new tolled underground tunnels as alternatives to existing routes.

Sara Parker, CBI Director London, said: “London’s businesses are much more optimistic about both the economy and individual business prospects than they were three months ago. It’s encouraging that so many have plans to expand but worrying that more aren’t planning to do so in the capital.

“The capital’s congested streets continue to be a concern with over half saying the roads are getting worse and nearly as many expecting the road network to deteriorate over the next five years.

Being able to get from A to B is a significant factor for business investment decisions so London’s companies want new airport capacity, improvements to roads, a commitment to Crossrail 2 and better access to London’s airports.”

Richard Reid, London Chairman at KPMG added: “As London’s population increases it becomes more urgent that the City has infrastructure that works properly. Building more roads in London is not an option so smarter management of our already overloaded system, through improved bus times, better use of existing road space for essential vehicles and possible road tolling, particularly in congested peaks, will be required to keep the city moving and to keep on attracting companies to base themselves here.

Continued investment in London’s infrastructure is absolutely vital to growth and in connecting us to the rest of the world. It is positive to see that large improvement programmes, such as Crossrail, are helping to boost the confidence of our business community here and other capacity improvements to come such as the Thameslink Programme will also improve connectivity to the rest of the UK and importantly South East airports.

However, there is little point being able to get to our hub airports faster if we cannot fly directly to the many destinations that will be the drivers of growth for London as a global hub.   Further delays in making a decision on London’s future aviation capacity could cost the Capital dearly, not just in deterring businesses from starting up here, but also in damaging our exports and leading role on the global stage.”

Key findings:

Economic and business prospects

  • Over half of respondents (56%) feel more optimistic about prospects for the economy over the next six months. This is up substantially from 26% three months ago and is the highest level of optimism recorded since the end of 2010. Only six per cent feel more pessimistic compared to 18% three months ago and 22% at the end of 2012
  • Just over half of respondents (51%) are optimistic about the prospects for their business over the next six months, up from 40% three months ago. Just seven per cent are gloomy about their six-monthly prospects compared with 9% three months ago and 15% in mid-2012
  • The top three concerns for London businesses over the next year remain the same as six months ago. The lack of economic growth (62%, down slightly from 65% from three months ago), uncertainty about global economic prospects (41%, down from 53% three months ago), lack of a clear government strategy to deliver growth (35%, down from 47% three months ago).

Expansion plans

  • Despite these concerns, over two-thirds of businesses have plans to expand over the next year (67% compared with 62% three months ago), with a growing number looking to do so in London (32% from 29% in July), but much lower than the proportion recorded at the end of 2012 (54%).

Investment intentions

  • Growing confidence about the economy is reflected in businesses spending intentions which are now around the previous peak recorded in mid-2010.
  • But the picture is mixed with companies planning to spend relatively more in recruitment and training, marketing and promotion, and IT, plant and machinery but relatively less on product and process innovations and land and buildings.
  • Jobs and recruitment
  • The improving trend in recruitment in the capital continued. The percentage freezing their recruitment is broadly unchanged (18% from 17% three months ago), but this still marks a substantial improvement from mid-2012.
  • Similar to three months ago, 21% are resorting to redundancies, but down from 31% in June 2012. Approximately 28% say the need for redundancies is easing.

Transport

  • All of London’s transport networks are performing better than they were in mid-2011, but there has been a slight drop over the last six months in the number of businesses that think the transport network is getting better.
  • 83% think the Tube is staying the same of getting better (90% at the end of 2012), 64% say that rail services are the same or improving (down from 77% in December 2012).
  • However, 54% of London’s businesses rate the roads as getting worse, up from 42% at the end of last year.
  • The top three concerns for the capital’s road network are congestion (90% said that they are somewhat or very concerned), quality of road surfaces (87%) and disruption caused by road-works (82%).
  • London’s firms highlighted the priorities for the capital’s roads as the implementation of smarter traffic management systems, moving more journeys from roads to other means of transport, greater flexibility for deliveries and the construction of new tolled underground tunnels.

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