Businesses in the United Kingdom have reportedly entered the new year with renewed positivity as overall confidence rose to the highest level for nearly two years.
The Barometer – which measures businesses’ confidence by assessing their trading prospects and optimism in the economy – shows overall confidence “rose to 44%, up 9 points on the previous month.”
It was the biggest monthly increase “since August and the highest level of confidence reported since February 2022, when the UK economy was recovering from the Covid-19 pandemic. It is also the strongest start to a year since January 2016.”
The increase in confidence is driven, in part, “by the easing of inflation over the past year and the growing expectation that interest rates will start to decline this year.”
The positive sentiment partly reflected optimism about the broader economy.
Despite continued geopolitical risks, the survey shows “that broader economic optimism has increased, rising to 37%. Trading prospects for 2024 were also the strongest they have been for over six years with the net balance increasing 3 points to 51%.”
Elsewhere, firms’ expectations “for staff pay fell back after December’s rise.”
The share of companies “anticipating wage growth of 4% or more in the next 12 months was the lowest for five months, and remains lower than levels across the past year.”
Similarly, the share of businesses “expecting pay growth of at least 5% also remains below last year’s level.”
Despite this, the longer-term view shows wage growth expectations “still remain above pre-Covid levels.”
Hann-Ju Ho, Senior Economist, Lloyds Bank Commercial Banking said:
“Businesses are feeling more confident following the cautious end to 2023, with this being the strongest start to a year since January 2016. The reduction in inflation, albeit with the recent uptick, and the belief that interest rates may have peaked is likely driving the rise in confidence among firms. With ongoing geopolitical issues and a general election on the horizon, businesses will have factored these into their risk radars and will be working to prepare for any potential impacts on their trading prospects.”
As noted in the update:
“Also, half of all companies say they’re planning to increase headcount in the coming year. Despite that and the changes to minimum wage that will come into force in April, expectations for staff pay fell back following last month’s increase.”
The pricing expectations of companies “fell for a second month – the first consecutive decline since June 2022. 60% (down two points) of firms plan to raise their prices with a while 4% (up from 3% in December) said they planned to cut their prices.”
Three of the four sectors tracked in “the Barometer reported rises in confidence. The most significant increase was in services which accelerated 15 points to 45%, up from December’s 16 point drop. Manufacturing confidence also increased to 49%, while construction increased/rose 8 points to a 10-month high of 45%.”
There is a more mixed picture “is retail however, dipping 3 points to 41% with anecdotal evidence of weaker footfall and sales in December as shoppers hit the streets earlier than usual in November. Nevertheless, some companies still reported stronger sales over the festive period.”
Managing Director for Relationship Management, Lloyds Bank Business & Commercial said:
“We’ve seen improved confidence in almost all sectors – a promising turnaround from December’s decline. A seven-month high in manufacturing and similarly positive results in construction make for positive reading.”