Lloyds Bank

BUSINESS CONFIDENCE FALLS DUE TO BREXIT UNCERTAINITIES

31 August 2018

Lloyds Bank’s Business Barometer for August 2018 shows

  •  Business confidence in August fell 6 points to 23%, led by declines in trading prospects for the year ahead and economic optimism
  • The net balance of firms expecting stronger trading prospects in the coming year fell for the third consecutive month, by 5 points to 29%, while optimism regarding the wider economy declined 8 points to 17%
  • Confidence fell in construction to (36%),consumer services (22%) and other services (18%), but remained steady in manufacturing (38%); Brexit concerns were the highest in the wholesale, hospitality & leisure and public sectors
  • Sentiment remained the highest in London (37%), the West Midlands (37%) and the North West (35%); eight out of the twelve regions saw a fall in overall confidence, most notably the South East.

Overall business confidence – an average of business prospects and economic optimism – fell to 23%, as both business prospects for the year ahead and economic optimism declined; according to the latest Business Barometer from Lloyds Bank Commercial Banking.

One of the main drivers for the drop in firms’ optimism for the wider economy was confidence that Brexit would have a positive impact on business expectations falling to a net balance of   -4% in August, from +3% in July – the lowest level since December 2017, on a comparable basis. Overall, 28% of firms thought that leaving the EU is having a positive impact on their business activity, which was down 3 points from 31%, while a growing number of firms (32%) said that it was having a negative effect (up 4 points from 28%).

Consequently, the net balance of firms expecting stronger trading prospects in the coming year fell for the third consecutive month, by 5 points to 29%, while optimism regarding the wider economy declined 8 points to 17%.

The findings also indicate that firms are holding back on their intention to increase their staff levels in the coming year, with the net balance falling by 9 points to 21% compared with 30% in July. Expectations for average pay growth also softened, with the proportion of firms anticipating a rise of above 2% falling to 35% from 39% in the prior month.

From a sector perspective, firms in the manufacturing sector remained most confident at 38%, but confidence of construction businesses fell sharply by ‑12 points to 36%, closely followed by consumer services (‑6 points to 22%) and other services (‑6 points to 18%).

Hann-Ju Ho, Senior Economist, Lloyds Bank Commercial Banking commented: “Business confidence was resilient in the first half of the year, but has eased back recently. This reflects changes in perceptions of Brexit risks, which underscores the importance of current  EU-UK negotiations.”

Regional variation Overall business confidence fell in eight out of the twelve UK regions. The most prominent fall was in the South East (‑17 points to 8%). There were significant falls also in the North East (‑14 points to 20%), the West and East Midlands (both ‑12 points to 37% and 21%, respectively) and London (‑10 points to 37%). Confidence levels remained the strongest in London, the West Midlands and the North West (35%).

Sharon Geoghegan, Managing Director for SME Banking said: “Economic uncertainty is definitely driving firms to think twice before investing in their businesses, although the manufacturing sector seems to be the most resilient, compared to the services sector which seems to be less confident.”

Ends

Notes to editors:
* Overall business confidence is a measure of responses from surveyed companies, which is calculated as an average based on their views on business prospects and optimism on the UK economy. 
** ‘Other’ services include financial, property and business services, education and health, and arts and entertainment.

  1. The Business Barometer results provide early signals about UK economic trends. The survey started in January 2002 and research is carried out monthly on behalf of Lloyds Bank by BDRC Continental.
  2. This survey was conducted with 1,200 companies between 1st to 16th August 2018 from all sectors and regions of the UK. Prior to January 2018, the fieldwork was based on 200-300 companies.
  3. The results are reweighted to match proportions by size, sector and region of the total business population, as published by the Department for Business, Energy and Industrial Strategy and the Office for National Statistics.
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