The study, based on responses from nearly 300 providers, found that almost a quarter (23 per cent) of providers in the capital said the level of free entitlement funding was the source of most financial strain. Forty per cent of providers also reported a drop in demand for places as a result of the recession.
Another 36 per cent said increased running costs created financial pressure and 19 per cent cited an increase in fee arrears as a problem.
Alison Garnham, chief executive of the Daycare Trust, said: "In a sense it is an inevitable result of the recession that people are going to be under financial pressure and it will not have been helped by last month's budget announcement that tax credits are to be tapered off much more quickly. From next year this may be an even bigger problem."
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