Steady business confidence buoyed by rise in economic optimism

30 April 2018

  •  Optimism regarding the wider economy increased by 4 points to 32% in April
  •  Overall business confidence was unchanged at 32%, in line with the long-term average
  •  The net balance of firms expecting stronger trading prospects in the coming year fell by 5 points to 31%
  •  The net balance of firms anticipating average pay growth above 2% increased to 40% from 37%
  •  Transport (56%) and communications (46%) were the most confident sectors, while the weakest was retail (15%)
  •  The North West (49%) and London (43%) were the most confident regions, while the South West and East Midlands were the least confident

Overall business confidence remained unchanged at 32% in April, broadly in line with the average for the first quarter. Beneath the headline reading, however, were differences in the components. The net balance of firms expecting stronger trading prospects in the coming year fell by 5 points to 31% and was below the Q1 average of 37%. Forty-four percent of firms (down from 48% in March) expected their trading prospects to improve, while 13% (up from 12%) anticipated lower business activity.

The fall in business prospects, however, was offset by an improvement in economic optimism. The net balance of firms reporting greater optimism for the wider economy increased by 4 points to 32%, and was above the Q1 average of 30%. Just over half (51%) of firms, (up from 48% last month,) said that they were more optimistic about the economy than three months ago, while 19% (down from 20%) were less optimistic.

The net balance of firms expecting to increase their staff levels in the coming year fell by 2 points to 25% and was slightly lower than the Q1 average of 27%. Forty-one percent (down from 44%) anticipated a rise in their headcount, while 16% (down from 17%) expected a reduction. The share of firms expecting their average pay growth to rise by more than 2% in the next twelve months increased to 40% from 37% in March.

There was little change in firms’ assessment of the impact of Brexit on their business prospects. The net balance remained slightly positive at 4%, compared with 5% in March. Thirty-one percent (down from 33%) of firms anticipated a positive impact, while 27% (down from 28%) expected a negative impact.

Hann-Ju Ho, Senior Economist, Lloyds Bank Commercial Banking commented:
The uplift in economic optimism this month, against a backdrop of slightly eroding business prospects is a positive move and may well be reflected in Sterling returning to pre-Brexit levels against the US dollar. With over half of firms more optimistic about the economy than they were at the start of the year, it will be interesting to see if that trend continues to grow as we approach the half way point in 2018.”

Overall confidence was the strongest in transport (56%) and communications (47%). The third-strongest industry sector was manufacturing (40%), even though it fell by 9 points. The industry sectors with weakest overall confidence were retail, which fell 12 points to 15%, and health, education and public sector (20%). In contrast to retail, overall confidence in wholesale rose by 15 points, although it remained relatively low at 26%.

Firms in the North West were the most confident in April. The headline index for the region rose by 10 points to 49%, while London fell to second place as overall confidence fell by 12 points to 43%. Regions with the lowest levels of overall confidence were the South West (down 12 points to 20%), the East Midlands (down 3 points to 21%) and Wales (up 9 points to 22%).

The North West and London reported strongest expected employment and pay growth. The net balances for staff levels were 44% for both regions. In contrast, Wales, Yorkshire and the Humber, the South West and the East Midlands were regions where employment and pay growth prospects were the weakest.

Gareth Oakley, Managing Director for SME Banking said:
“Confidence in the Retail sector dropped in April, perhaps unsurprisingly with the adverse weather in the first quarter and the fall of some of the high street giants.

“Firms in the North West displayed strong levels of confidence in both their business prospects and expect to see a rise in employment and wage growth. Londoners are still recording high levels of confidence despite a 12 point drop from the levels previously seen in March.”