London economy squeezed by inflation grip in sign of looming UK-wide slowdown

London’s economy is being choked by intensifying inflationary pressures in a sign that the rest of the UK is headed for a period of weaker growth, reveals a fresh survey released today.

Concerns about a reduction in consumer spending in response to the worst cost of living crunch in 30 years has pushed London business confidence to its lowest level in a year and a half, according to NatWest and S&P Global’s purchasing managers’ index (PMI) for the capital.

The worsening trading environment in the capital is likely a sign of things to come for firms across the UK.

Last week, the Bank of England warned the UK is on the cusp of plunging into a recession, sparked by households tightening their belts as their incomes are eroded at one of the steepest rate since the 1960s by accelerating prices.

The Bank forecast the economy will contract 0.25 per cent next year, while inflation will reach just over 10 per cent this October, which would be the highest rate since the early 1980s.

NatWest and S&P Global’s data indicate Threadneedle Street’s glum projections are likely to materialise.

Firms in the capital hiked prices at the fastest pace on record in response to costs also swelling at the quickest pace ever, suggesting inflation is set to climb above what is already a three decade high of seven per cent.

Soaring energy prices triggered by Russia’s invasion of Ukraine and a sharp uptick in demand as countries shake off Covid-19 has heaped pressure on businesses’ margins and households’ finances.

Upward wage pressure caused by the UK jobs market being extremely tight is adding to firms’ costs.

“The risk of further inflationary and economic uncertainty from the war in Ukraine drove a marked decline in business confidence, which fell to the lowest since September 2020,” Catherine Van Weenen, NatWest London and the south east regional board, said.

London’s economy is still growing quickly, with the PMI hitting 61.3 last month. A reading above 50 indicates most firms reported activity growing.