London business outlook improves despite slow May
Optimism returns as London business look beyond tariffs and inflation
Business confidence across London rose in May 2025, even as output remained subdued and demand conditions softened. New data from the London Business Activity Index shows a slight drop from 49.7 in April to 49.5 in May, marking a mild but continued contraction in output for the capital’s manufacturing and service sectors.
The decline in output was largely attributed to tightening client budgets and heightened economic uncertainty, particularly surrounding global trade. However, the recent easing of US tariffs helped temper those concerns, boosting optimism for the months ahead.
“It’s encouraging to see growth expectations bounce back,” said Sebastian Burnside, Chief Economist at NatWest. “Businesses in the capital are clearly looking to the future with investment and innovation in mind.”
Despite a decline in new business orders, especially from US clients, expectations for future activity recovered significantly from April’s low. London firms cited long-term investment plans and the rollout of new technology as reasons for their renewed confidence.
Slower price rises offer hope
One positive sign was the slowing of inflation. Prices charged by London businesses increased at the lowest rate since October 2024, suggesting companies are wary of passing on costs to cautious customers. Input cost inflation, driven largely by wage increases and changes to national insurance, remained high but fell back from April’s peak.
May also saw further job cuts in the capital. Employment levels dropped as businesses held back on rehiring, citing both reduced activity and increased staffing costs. Still, the pace of job losses eased slightly, mirroring the national trend.
London’s business landscape
London’s economy continues to reflect its diverse make-up. Manufacturers remain concentrated in textiles, food and drink, and paper and timber products. On the services side, financial intermediation, computing, and B2B services dominate.
Although six UK regions saw contractions in May, London’s sharper-than-usual dip in new business activity, its fastest in over four years, points to the impact of global factors beyond local control. However, signs of stability in financial markets and an uptick in domestic investment are helping balance the mood.
For those tracking the city’s economic health, the improvement in future expectations may be the key takeaway from May. While challenges remain, especially around employment and cost inflation, the capital’s businesses appear ready to adapt.
Confidence among London firms was boosted in part by the easing of global trade concerns, with updates from the Office for National Statistics helping businesses track UK economic trends and growth forecasts.
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