Cheerful outnumber gloomy four to one

LONDON'S business community enters 2002 in buoyant mood. Some of its post-September worries persist, especially among the capital's retailers, but overall confidence levels are on their way back to where they stood before the terrorist attacks on New York and Washington.

Over the Christmas period, 276 executives of companies, employing almost 200,000 workers across London, were questioned on behalf of the Evening Standard and the London Chamber of Commerce and Industry. These are the key findings:

62% are optimistic 'about the economic prospects in the short to medium term' for their own company. This compares with just 41% in October, when post-terrorism gloom was greatest.

Asked about prospects for London as a whole, optimists outnumber pessimists by more than four to one. In October, pessimists slightly outnumbered optimists.

However, many businesses have had to endure a difficult autumn. Only 32% say they have been operating at full capacity; a year earlier the figure was 62%.

Even so, the autumn dip was not only shorter but also far shallower than the last real downturn a decade ago.

Slightly more companies have shed jobs than expanded their workforce in the past three months. But there are signs more jobs will become available this year.

There are few inflationary pressures in the pipeline. Only 18% of companies expect to raise their prices in the next few months, the lowest figure for two years.

Optimism has recovered across the board - in every sector of London's economy, and among companies large and small. However, despite a strong Christmas when shoppers spent as never before, the capital's retailers remain less cheerful than the managers of other companies. Just 38% of retail executives are optimistic about prospects in 2002 for their own company, compared with 61% of manufacturers, and 78% of firms operating in finance and business services.

The overall level of confidence slumped by 31 points between late August and late October. Since then the figure has bounced two-thirds of the way back: up 21 points in two months to 62%.

This month's monitor incorporates questions the LCCI has asked quarterly since 1990. This allows us to compare the recent plight of the capital's economy with the last full-scale recession, in the early Nineties. It is clear that while life has been problematic for some companies since 11 September, it has been nothing like as hard overall as it was 10 years ago.

For example, the reduction in the number of firms operating at full capacity has certainly been sharp; but at 32%, the level remains far higher than in the early Nineties. Between the spring of 1991 and the winter of 1994 it never climbed above 10%, and slumped at times as low as 3%.

The story is much the same for jobs. Throughout the early Nineties, many more London companies were shedding workers than hiring new employees. Over the past three months, there has been only the slightest of downturns, with 14% of businesses expanding their workforce, 17% contracting it, and 67% maintaining the same numbers through the autumn.

Asked about their plans for the next three months, 21% expect to employ more people, and just 10% fewer; 65% expect numbers to remain about the same.

Is there a downside to this generally upbeat picture? For example, could it mean the build-up of inflationary pressures, and provoke the Bank of England into raising interest rates? The early indications are that the Bank need not worry, at least in the short term. Just 18% fear they will need to raise prices in the next three months, while 8% expect to cut prices. The great majority expect prices to remain unchanged.

The difference between those intending to raise prices and those intending to cut them yields a net balance of plus 10. This compares with plus 19 six months ago, and plus 29 a year ago.

The good news for shoppers is that the balance among retailers is zero: as many shops expect to cut prices further in the coming months as expect to raise them.