Business Confidence Falls At The Fastest Rate Since February

The latest Lloyds Bank Business Barometer shows:

• Overall business confidence[1] was down 12 points to 1%, the first fall since May, and the second largest month-on-month decline this year, bringing levels to just below those seen in June 2016.

• Confidence fell across all 12 regions, with the smallest declines in the West Midlands and East of England, and the most notable decline in the East Midlands.  

• Confidence in manufacturing, retail and services was down, although the construction sector bucked the trend, improving 6 points to 12%.

Overall business confidence fell in August, for the first time in three months, by 12 points to 1%, according to the latest findings from Lloyds Bank Commercial Banking Business Barometer. Overall business confidence is calculated by averaging the views of 1,200 companies on their business prospects and optimism about the UK economy.

This month’s business confidence fell at the fastest pace since February, when it dropped 15 points to 4%.  The decline of 12 points to 1%, brings business confidence to just below the level seen in June 2016, and further below the long-term average of 24%.[2]

The decline in overall sentiment is reflected in firms’ assessments of their trading prospects and optimism about the UK economy, with the net balance of companies expecting trading prospects to improve over the coming year declining from 19% to 8%, and wider economic optimism falling from 6% to ‑5%, (see chart 1). 

In August, the number of firms expecting to add to their headcount fell to 26% (down from 32%), with a quarter of businesses (up from 20%) predicting a reduction in employee numbers.   

Firms’ assessment of the expected impact of the UK leaving the EU was broadly in line with the average for the year, falling just one point from last month to -18%.  While over a third of businesses (up to 39% from 37%) continue to expect a negative impact from leaving the EU, a fifth (21% up from 20%) believe leaving the EU will have a positive impact (see chart 2).    

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

“We have seen a dip in overall business confidence this month, with firms appearing less positive about their own trading prospects and the broader economy, and remaining low against the historic average.  While ongoing economic uncertainty is likely a key driver, it’s worth noting that companies’ assessment of the expected impact on their business of the UK leaving the EU has remained broadly unchanged this year.”  

CONFIDENCE DOWN ACROSS REGIONS AND SECTORS

Business confidence fell across all twelve regions (see chart 3).  The smallest decline was in the West Midlands, down 4 points to 15%, making it the most confident region.  The East of England fell 5 points to 4%, and the North East 6 points to 1%.  

The largest decline was seen in the East Midlands, which was down from last month’s strong level of 26% by 23 points to 3%. Other notable falls were in Wales, which was down 18 points to ‑2%, and Northern Ireland, down 18 points to 0%.  Although the South West also fell 18 points to 11%, it remains one of the most confident regions.

In August, business confidence in the construction sector rose by 6 points to 12%. Meanwhile, overall confidence fell by 16 points to 3% in the manufacturing sector, and by 11 points to 6% in retail, the lowest levels seen for those sectors this year.  Confidence was also down, 15 points to -3%, in the services sector, bringing it near to the February low of -4% (see chart 4). 

Paul Gordon, Managing Director for SME and Mid Corporates, Lloyds Bank Commercial Banking, said:

"We continue to see variations month to month in overall business confidence, and across sectors and regions.  Although the outlook appears less positive this month, there were improvements seen in the construction sector, signalling some resilience in the UK economy. What is highly likely is that we will continue to see further fluctuation in the months ahead.”

Notes to editors

¹ 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.

² The long-term average for business confidence is calculated as the average since the survey began in 2002, taking into account the expansion of the survey’s sample size at the start of 2018 when firms with turnover below £1m were included for the first time.

• 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.

• This survey was conducted with 1,200 companies between 1-16 August 2019 from all sectors and regions of the UK. Prior to January 2018, the fieldwork was based on 200-300 companies.

• 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.

• For further summaries and infographics, see #BusinessBarometer or follow @LloydsBankNews on Twitter.