The loop passes through several high density neighbourhoods in Edinburgh and is currently used for diversions and freight.
Halcrow's study concluded that there was no longer sufficient capacity for the route set out in a 2006 feasibility study. This was to run through Haymarket and Waverley stations.
Current expansion plans for commuter services running into both of these will eat up the capacity for the South Suburban loop to run services through the two city centre stations.
An alternative link from the east of the city using the loop to serve Edinburgh Park in the west is likely to be ruled out as too costly: it would cost £38M in capital investment and require £1.8M in annual subsidy for maintenance.
The capital investment figure is double that originally quoted in 2004.
Edinburgh City Council transport convenor Phil Wheeler said: "I have been calling for this route to be re-instated for several years so the results of this report are extremely disappointing. This report, carried out by experts over several months, has found the business case is just not strong enough."
The Halcrow work followed on from and built on work done by Atkins in 2003 which concluded that there was a '"weak" business case.
The report, was jointly commissioned by the Council, Transport Scotland and the South East Scotland Regional Transport Partnership. It will be considered in detail this month.