A shortage of skilled staff is now the biggest barrier to business in London, overtaking transport problems for the first time, according to new research from the Confederation of British Industry.
The CBI/KPMG London Business Survey found 61 per cent of British employers in the capital were facing skills shortages, up from 49 per cent last year, with firms in the property, professional services and transport sectors worst affected.
The biggest problem was recruiting staff with specialist skills, but general skills such as communication and team-working, as well as basic literacy and numeracy deficiencies were also a concern, said employers.
The difficulty in recruiting skilled staff may also be having an effect on off-shoring, with the proportion of companies moving research and development work overseas doubling in a year.
Overall, after skills, concerns over the transport network were the second biggest barrier to business in the capital, with regulation in third place, and lack of office space in fourth.
However, despite these concerns, businesses were increasingly positive about London as a place to do business with half saying it is still "very good" and 45 per cent "good".
Sir Digby Jones, CBI director-general, said: "Our success, not only in the capital but nationally, increasingly relies on our ability to function as a highly skilled, hi-tech economy.
"While it is positive news that London is still seen as a good place to do business, employers are right to be concerned about the difficulty in finding staff equipped with both basic and more advanced skills.
"Business does not expect young people to have all the skills to do a specific job but surely it is not asking too much of the Government to ensure school-leavers have, at the very least, the ability to add up, read and write," he added.
Two-thirds of companies in the survey said staff training was the most worthwhile and rewarding form of business investment.
Forty per cent aimed to increase their spending on recruitment and training in the next six months. Last year, nationally, employers spent £33bn on staff training.
Ian Barlow, London senior partner at KPMG, said: "The skills shortages in the capital are worrying and if left unaddressed will affect London's competitiveness.
"Business needs to be allowed to help shape the provision of skills training so that it becomes demand-led and equips people with the skills that employers are looking for," he added.
The survey also revealed that three out of ten of the capital's companies had transferred some of their activities off-shore or were considering doing so.
India was the most popular destination, followed by EU partner countries, China and the Far East.
Of businesses already off-shoring last year, just 15 per cent of them were transferring R&D work but, indicating the increasingly sophisticated skills and services on offer overseas, this has leapt to 34 per cent this year.
IT and financial services remain the activities most companies off-shored.
Sir Digby added: "With an increasing pool of highly qualified graduates in emerging economies such as China and India, and costs often far lower, it is understandable that businesses are sending more activity overseas.
"The skills challenge for the UK is becoming more and more pressing," he added.
Half of London's firms did not have plans in place to deal with a terror attack or emergency like the Buncefield oil depot explosion, with smaller companies the worst prepared.
Half of employers said crime was an issue with larger companies the most concerned.
Three-quarters said employment regulation was "increasingly or very restrictive", 58 per cent found tax regulation restrictive and 55 per cent said the same about financial sector regulation.