The latest CBI/KPMG London Business Survey of 188 companies, published today shows 57% are now hiring as normal, compared with 45% six months ago.
Fewer firms are making redundancies: 20% compared with 29% in the December survey.
Half (51%) of London companies are optimistic about their business prospects over the next six months, rising to 57% among SMEs. But this is tempered by uncertainty about the economy: 43% are more optimistic about the prospects for the economy than they were six months ago, while 31% feel about the same, and 26% are less optimistic.
The top three concerns over the next year are the threat of a double-dip recession, the tax regime and rising prices and inflation. Fewer companies are concerned about public spending cuts affecting their businesses: 52% say that the cuts will have at least a moderate impact, down from 71% six months ago.
Expansion plans remain strong, with 65% of businesses saying that they plan to expand over the next year, roughly the same as December (68%). Of those, 43% have plans to expand in London, up from a third on December, and 36% want to expand outside the UK.
London firms are upbeat about the city's competitiveness: 87% rate the capital as a good or very good place to do business compared with other global cities, and 78% believe London's position in five years will be at least the same or will have improved.
London firms say that the top three priorities for the Mayor should be improving London's infrastructure, followed by promoting the capital internationally and delivering support for skills and apprenticeships.
Sara Parker, CBI London regional director, said: "It's great news to see that more London firms are hiring as normal and redundancies have fallen. Many businesses are planning to expand, but this optimism is clearly tempered by uncertainty about the economy.
"London is a great place to do business. Companies view the city's talent pool, ease of access to global markets and proximity to clients as the capital's biggest strengths, but high operating costs and the fragile transport system are seen as major weaknesses.
"The roads network is the biggest transport concern for London firms who want one of the Mayor's top priorities to be improving the city's infrastructure."
Almost half of employers (42%) are confident they are prepared for staff absence during the Olympic games in 2012 but 18% are not. Many smaller and medium sized firms in the city don't think they need to prepare.
There are still some concerns about the skills legacy - only 45% of respondents say that they think skills will be enhanced by the Olympics.
A third (33%) think the Games will benefit the economy outside London, compared with 62% who do not. Overall, 35% of London businesses are not confident that enough is being done to ensure a positive long-term legacy from the Olympics.
Richard Reid, London chairman, KPMG, said: "It's encouraging to see that investment and expansion plans are back on the agenda for an increasing number of London businesses, and particularly in the SME sector, which will play a vital role in getting the economy back on it's feet.
"However, there is still much concern around the increasing burden of regulation. Two-thirds of London firms say that red-tape has increased in the last year, particularly in the area of taxation, which could not only hamper growth, but is a key consideration for foreign businesses looking to establish a base in Europe.
"Almost all London businesses are confident that the Olympics will help promote the capital internationally which they also single out as a top priority for the Mayor. But there is some concern that not enough is been done to ensure the long-term legacy of the Games, particularly on skills. Whilst putting on an amazing Games to showcase London at its best is essential, it is the legacy that the Games will leave for businesses and Londoners beyond 2012 that is a vital part of hosting the Games next year, and it is obvious that more needs to be done to communicate this effectively.
"Not only will the Games leave a lasting benefit in new and improved infrastructure for London, but there is also the prospect of much needed additional housing, the opportunities for start-ups and small businesses in the enterprise zone, and the up-skilling of thousands of Londoners through the volunteers programme. KPMG is involved with the Personal Best programme, which supports the training of volunteers for the Olympics, enabling participants to gain nationally recognised qualifications at the end, but many companies are simply unaware of this programme."
