Only 13% of London businesses feel more optimistic about prospects for the economy over the next six months, compared with 43% in June, and optimism about their own business prospects has fallen from 51% to 31% over the same period, according the latest CBI / KPMG London Business Survey.
In the bi-annual survey of 262 London business leaders, published this morning, just over half (55%) say their top concern over the next year is the threat of a double-dip recession.
But companies are now less concerned than six months ago about reduced public sector spending, which has dropped from second to seventh place. Although half (51%) of firms still think public sector spending cuts will have a moderate impact on their business (down from 71% a year ago).
London businesses think that employment regulation is the most burdensome area of regulation, which has moved up from second place six months ago, followed by taxation, and health and safety.
Companies say the burden of bribery and corruption legislation has increased in the last six months, and they now rank this as the fourth most burdensome area of regulation (up from seventh place last year).
The number of companies only hiring when essential has increased from 59% in June to 64% in this survey, with 23% of businesses implementing recruitment freezes, broadly the same as six months ago (20%).
With just over seven months to go until the Olympics, an overwhelming 92% of London businesses think the Games will benefit London internationally, and three-quarters (78%) say they are 'looking forward' to the event.
As the Games move closer, more companies are starting to think about business planning around the event, with only 13% of firms not having considered the potential transport and logistics impacts (down from 40% in June).
But the number of London businesses that feel prepared for these issues is still roughly the same as in June (32% compared with 36%), and the same number of firms as six months ago (39%) say they are still not prepared. Three-quarters of respondents (72%) feel they do not have sufficient information about the Olympic and Paralympic route networks.
Almost half of companies (49%) are now confident about dealing with staff absence during the Games, while 20% have not yet considered the issue.
More than two out of five (43%) say not enough is being done to ensure the long-term legacy from the Games.
Three quarters of companies say they do not have enough information about security during the Games, yet 62% say the summer's riots in the capital have not dented their confidence in the authorities' ability to deliver a secure Olympics.
In the other key London event for 2012, the mayoral elections, businesses felt that the top three priorities for candidates should be promoting London internationally, improving the capital's infrastructure and strengthening support for small and medium-sized enterprises (SMEs).
Companies' expansion plans remained at the same level as in the June survey with 58% of firms planning to expand over the next twelve months, 42% looking to do so in London.
However, a quarter of firms (25%) have been negatively affected by the introduction of the annual cap on the number of tier 2 visas to non-EU migrants, with 63% reporting difficulty finding people with specific skills and 37% saying it was taking longer to fill vacancies.
Sara Parker, CBI London region director, said: "It's clear that London business confidence has been knocked by the ongoing uncertainty in the Eurozone and weak demand and growth at home. We now need the Government to power ahead with its autumn statement plans to help businesses grow and create jobs.
"Companies are confident that the Olympics will benefit London internationally. The Games will showcase London as a world-leading business location, and highlight the success of UK firms in delivering a complex construction and infrastructure project. Expertise that can be easily exported around the world.
"It's good news that the majority of the capital's companies are now thinking about planning for the Games, but there is still more work to be done over coming months to make sure transport, staffing and security issues are ironed out."
Richard Reid, London Chairman, KPMG LLP, said: "Companies' optimism has taken a knock since our June survey, but it's clear that firms continue to rate the capital as a good place to do business thanks to the strong skills base and access to global markets.
"As we enter the crucial campaigning season for the Mayoral candidates, transport is the key issue and businesses will be eagerly listening to find out how improvements will be made a priority, with a particular focus on increased air and rail capacity in the South East.
"The autumn statement gave the green light to some key transport projects for the South East, however, businesses will also want to understand how candidates plan to better manage the disruption and thus congestion caused by road works. This will be especially important as the transport system comes under increasing pressure with many more travellers during the Olympics.
"The Games will be great for business and will help promote London, but more needs to be done to ensure a long-lasting skills legacy for the capital is secured."
The CBI/KPMG London Business Survey is conducted twice a year to monitor the views of business on London as a place to do business. A total of 262 businesses took part, and the survey was conducted between 8 September and 11 October.