London firms will be forced to weather a sharp drop-off in investment in the coming months before it rebounds in full force, a top official at the British Business Bank has warned.
Matt Adey, senior economist at the state-backed economic development bank, said choppy markets in the UK meant that investment into London’s growing firms would slow in the period ahead, but predicted the Capital would come roaring back eventually.
“I would expect to see significantly less deals and there are significantly less deals going on in quarter three by the looks of it,” Adey told City A.M. in an interview.
“But that doesn’t that doesn’t strike me as a long term problem. It’s just part of the volatility of these these markets.
“Fundamentally, London is a strong market with lots of innovative businesses looking for finance, and lots of people looking to finance them.”
The comments come as funding begins to slow for firms this year after a frenzy of investment in 2021 that saw record amounts of capital injected into London’s businesses.
Fresh figures from the state-backed British Business Bank showed that London firms guzzled up almost half of the total equity deals in the country last year.
Analysts are warning of a slowdown in funding globally in the coming months, however, as rising interest rates make cash harder to come for investors and so-called ‘dry powder’ raised prior to the downturn this year dwindles.
“The shift in monetary policy from historically low interest rates that promoted growth, spending, and borrowing is notable and its impact on the VC dealmaking environment will be clearer as we progress into Q4 2022,” said analysts at Pitchbook in a recent report.
“VC deal activity growth has been considerable year-over-year (YoY) during the past decade, and we believe a flattening could take place in 2023, rather than a sharp decline.”