London businesses have hundreds of billions of pounds in working capital tied up in day-to-day operations, according to new research.
Firms in the capital have £219.6bn in working capital despite efforts to lower levels of cash stuck in the business, according to Lloyds Bank.
While high levels of working capital can be a sign of strong performance as firms increase production, it can also leave them vulnerable if economic conditions turn and demand slows.
London unsurprisingly holds the highest amount of working capital of the UK’s regions, with the South and East next at £138.3bn.
Businesses in London are facing pressure to release cash, which can be used for investment in growth or as a buffer if economic conditions change. Some economists expect UK growth to slow as rising inflation dampens spending.
Ben Stephenson, a managing director at Lloyds Bank, said: “The cash mountain that London’s service sector and larger companies have locked away could be a positive sign. Businesses can afford to stock up and tie up increasing levels of cash in working capital when they are performing well and focused on growing their business.
“But having no access to those funds at times of uncertainty, or if the economy falters, could spell danger,” he added.
However, the research shows businesses in the rest of the UK are facing the opposite pressure to increase working capital.
Chris Williamson, chief business economist at IHS Markit said: “Businesses across the capital are managing to release more cash, but it is worrying that the UK’s firms are under such high pressure to increase working capital at a time when other economic indicators suggest the economy is starting to slow.”
“Looking back over the past 17 years, this index shows that when times get tough, companies normally look to decrease working capital to free up cash.