Confidence among small businesses in London has taken a nosedive, with some sectors experiencing record-low levels of optimism.

The Federation of Small Businesses (FSB) has released a report indicating that confidence levels for London's small firms plummeted to 62.6 in Q4 of 2024, a significant drop from the negative 1.2 percentage points recorded in the previous quarter, as reported by City AM.

This marks the lowest level of confidence outside of pandemic times, as per the FSB's findings. London experienced the sharpest decline, with overall small business confidence in the wider economy at 40.1.

The accommodation and food services sectors were hit hardest, with confidence sinking to an unprecedented low of negative 111 points.

The wholesale and retail sectors weren't far behind, registering a confidence level of negative 94.2 points.

Meanwhile, those in the professional, scientific, and technical activities sectors were comparatively less pessimistic, with a score of negative 40.1 points.

The construction sector witnessed the steepest fall in confidence between the third and fourth quarters, deteriorating from negative 26.6 points to negative 76.8 points.

The majority of respondents in the report identified the domestic economy as the primary obstacle to growth "once again". However, the tax burden has risen to become the second most significant barrier, with over 43% of small businesses flagging it as a concern.

Labour-related costs ranked third but were more pressing for businesses across the UK (42%) than those in London (31.5%).

Consumer demand, typically a top concern for small firms, has dropped to fourth place, being cited by 28 per cent of small businesses. The FSB's report predicts 'subdued' growth prospects as small businesses anticipate "see lower levels of expansion".

Just over 43 per cent of small firms expect their business to grow in the next 12 months, a decrease from more than half in the previous survey.

Tina McKenzie, FSB’s policy chair, commented on the findings: "The fourth quarter blues reported by small firms underline how urgently the government’s growth push is needed."

She noted that "Small firms are understandably nervous about their prospects as 2025 gets underway" and highlighted the upcoming Employment Rights Bill as a "major source of stress for small firms."

A recent FSB report disclosed that 90 per cent of small firms are concerned about the implications of the Employment Rights Bill.

McKenzie emphasised that the Spending Review, concluding in June, "must prioritise spending on programmes that will deliver small business growth".