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London sees output boom as demand picks up in December

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Shearwater Group, a cyber security firm based in London, has reported a decline in its full year revenue, missing expectations by £10m.
Shearwater Group, a cyber security firm based in London, has reported a decline in its full year revenue, missing expectations by £10m.

Private sector activity in London climbed to its highest level in seven months in December with firms in the capital reporting a sharp increase in new orders at the end of the year, according to a new survey.

Natwest’s London purchasing managers’ index (PMI) climbed to 58.2 in December, up from 56.5 the month before. The 50-mark separates growth from contraction.

Firms in the capital saw new business orders accelerate in December taking the new business index to its highest level since May.

The index, which measures the month-on-month change in output of London’s manufacturing and services sector, showed a particularly strong performance from IT firms and financial firms. Hotels, restaurants and caterers also saw a strong December.

The expansion in new orders was “easily the sharpest” among all monitored regions in the UK, the report noted, with the West Midlands and South West the only other regions to record increases.

With demand rising, business optimism in the year rose to its highest level since March 2022. A number of businesses expressed confidence in the launch of new products in particular.

“More UK regions registered an expansion in activity in December, yet it was again London where the fastest growth was recorded by far,” Catherine van Weenen, Natwest London and the South East Regional Board, commented.

London firms also saw an increase in employment in December. However, the increase was only marginal despite the rapid rise in new orders.

Cost pressures and an increased focus on automation had made firms cautious about taking on new staff. In fact input costs rose sharply in December, taking it to a four month high with wage pressures largely driving the increase.

Van Weenen suggested that firms’ more disciplined approach to hiring would help ease wage pressures somewhat over the months ahead.

“Wages still appear to be causing some stickiness to inflation according to the survey’s price metrics, but the data also signals that hiring growth is being strained by a more strategic approach to costs, providing some expectation that salary pressures could also ease,” she said.