UK Business Confidence Remains Steady Indicating Optimistic Outlook from Firms – Report

Lloyds Bank’s latest Business Barometer has found that overall business confidence is unchanged in April – staying at 42%.

The result means the overall confidence figure “remains at an elevated level compared to the Barometer’s long-term average (28%), with only January 2024 seeing businesses report higher levels of confidence (44%) in the last 12 months.”

Although April is now the third month in a row where business confidence has not changed, firms did show “more positivity than previous months in relation to the wider economy.”

In this respect, businesses reported “the highest level of confidence in the economy since February 2022.”

Almost two-thirds (57%) of firms “expressed greater optimism about their economic prospects, while 18% were less optimistic (down from 21% in March), meaning the net balance increased by 4 points to 39%.”

Official monthly GDP data appears “to corroborate these findings, as the data for January and February suggests the economy began to grow again early this year.”

When asked about their own trading prospects, businesses continue “to be positive, although slightly less than in previous months.”

Over half (55%) of the companies surveyed said they “expected a stronger output over the next 12 months, while an unchanged 10% anticipated weaker activity.”

As a result, the net balance for trading prospects “fell 4 points to 45%.”

Concerns about supply chain disruption “have reduced, compared to previous months. It is no longer the factor most concerning businesses, with interest rates, inflation, and energy prices the most prominent issues.”

Tellingly, even concern about these issues has “continued to trend downward, coinciding with increased confidence reported by businesses.”

Businesses’ overall staffing expectations “regained momentum in April to negate most of March’s decline.”

Nearly half of all firms (49%) reported that they “intended to increase their workforce and hire more employees over the coming months.”

Meanwhile, businesses expecting to “reduce their staff numbers fell to 16% (down from 19% in March). As a result, the net balance increased by 6 points to 33%, in a positive sign for the labour market.”

Further analysis, however, shows “that the smallest companies surveyed – those with the lowest headcount (fewer than 10 employees) – were still somewhat cautious, showing less readiness to hire new employees.”

This could partly be due to the “increase in National Living Wage which came into force this month, with smaller firms potentially more disproportionately affected.”

The increase to salaries delivered “by the new National Living Wage may also have been a factor behind wage growth expectations pulling back in April.”

The number of firms “expecting a 3% increase (or more) fell to 30%, the second consecutive monthly fall.”

Similarly, the number of firms “expecting to issue pay rises of at least 4% declined for a second month. It is important to note that these figures remain above the levels seen before the pandemic.”

Hann-Ju Ho, Senior Economist, Lloyds Bank Commercial Banking said:

“We are beginning to see a consistent trend emerge from our Barometer results in recent months. Businesses are feeling increasingly confident about the economy, coinciding with falling inflation and hopes that interest rates will start to fall this year. There continues to be a mixed picture among the regions, with the biggest rises seen in Wales and the South West. The strongest confidence was reported in the East of England, with confidence rising for the third consecutive month. Confidence in the North East eased slightly but remained strong in April. The second quarter of 2024 has started brightly for businesses, and we are seeing firms expressing greater confidence in an enduring economic recovery.”

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