Lloyds Bank

Confidence in the UK economy is at an all time high

27 September 2013

The Lloyds Bank Business Confidence Barometer ‘monthly snapshot’ for September shows:

  • UK companies’ optimism about the UK economy is at an 11 year high in September with more than two thirds of companies indicating they have greater optimism than three months ago
  • Businesses’ confidence in their own trading prospects fell marginally but the overall quarterly average is at the strongest level since the end of 2007
  • Both indices, taken together, point to the potential for economic growth to remain strong and even accelerate in the second half of the year to 0.8 per cent quarter-on-quarter growth in Q3 2013 and 1 per cent quarter-on-quarter growth in Q4 2013
  • More than two fifths of companies plan to increase staff levels in the coming year
  • The industrial sector (manufacturing and construction) and the South have the strongest economic prospects in Q3 2013, though all sectors and regions have seen prospects improve since the start of the year

Business confidence in the economy increased to the highest level since the Lloyds Bank Business Confidence Barometer started in 2002. More than two thirds (68 per cent) of companies said that they were more optimistic about how the economy would fare compared with three months ago.

The net balance of businesses that are optimistic about economic prospects - which weighs up the percentage of firms that are now more optimistic than they were three months ago against those that are more negative - increased by 3 points to 57 per cent in September. Further analysis shows a five percentage point increase, to 68 per cent, in the number of businesses that are more optimistic about the economy than they were three months ago. Only 11 per cent of businesses said they were less hopeful about the economy, which is a marginal increase from August when nine per cent of businesses were pessimistic about the economy.

Businesses show a marginal drop in confidence in their own future trading prospects
Businesses had a marginal drop in confidence towards their own trading prospects over the next twelve months. Just under two thirds (59 per cent) of firms said that they expect trading prospects to improve, which is unchanged from August, while there was a slight increase of one point to four per cent that expected a fall in their trading prospects. The overall net balance of 55 per cent is down one point from last month. However despite the drop, the quarterly average is at the strongest level since late 2007, prior to the height of the global financial crisis.

Taken together, both indices indicate that economic growth could accelerate to around 0.8 per cent quarter-on-quarter in Q3 2013 and preliminary indications point to a 1.0 per cent quarter-on-quarter growth in Q4 2013. If subsequently this is reflected in official statistics, this may sustain the challenges that the Bank of England Monetary Policy Committee face in implementing its forward guidance policy.

Staff levels likely to increase
Following an increase in confidence towards the economy, 43 per cent of businesses plan to increase staff levels in the coming year while 5 per cent expect to reduce them. The resulting net balance of 38 per cent is the highest since 2011.

The industrial sector feels bullish
Business confidence towards the economy increased across all sectors with the industrial sector (which includes manufacturing and construction businesses) showing the strongest increase in confidence (63 per cent) over the past three months compared to 42 per cent in Q2. This sector is now outperforming both the consumer services (42 per cent) and business & other services (50 per cent) sectors.

South leads in confidence
Furthermore, the overall balance for business confidence towards the economy continues to be strong in the South (58 per cent) and is ahead of the Midlands (48 per cent).

Economic prospects in the North (41 per cent), while lagging behind the South and Midlands, has also improved this year.

Trevor Williams, Chief Economist, Lloyds Bank Commercial Banking, said: "Businesses are more positive about the economy than at any time since the end of the recession. This is likely to translate into robust growth in the second half of the year.”

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