New year, new confidence for businesses

Lloyds Bank’s Business Barometer for January 2019 shows:

• At the start of the New Year, overall business confidence* rose 2 points to 19%, driven by a slight increase in economic optimism.
• Confidence was highest in London (36%) and the West Midlands (31%), but lowest in the North East (1%) and Scotland (1%).
• Manufacturing (28%) and construction (30%) confidence levels rose, outperforming the retail (14%) and services (19%) sectors which fell for a second month.
• The net balance for expected staffing levels fell for the third time in four months to 14%.

Overall business confidence – an average of business prospects and economic optimism – picked up slightly at the start of the year, increasing 2 points to 19%, according to the latest Business Barometer from Lloyds Bank Commercial Banking.

Despite this improvement, the figure remains among the lowest seen in the last 12 months and is well below the level of confidence businesses reported at the start of 2018 (35%).

Marginal improvement in confidence was driven by an increase in economic optimism, which has risen by 3 points since December to 0%.

Disappointingly, employment expectations for the coming year have fallen for the third time in four months. The net balance declined by 3 points to 14%, with just over a third (34%) expecting to add to their headcount while 20% anticipate reducing it.

Retail and services lag behind manufacturing and construction sector

The Lloyds Bank Business Barometer highlights greater resilience in the manufacturing and construction sectors where hiring intentions were strongest (30% and 26% respectively) and business confidence highest (28% and 30% respectively).

Meanwhile, hiring intentions in retail and service sectors fell to 9% and 8% respectively. This caution is reflected in business confidence too, where confidence fell for the second month in a row to 14% in retail and 19% in services.

Firms in the retail and service sectors were also the most negative about the expected impact of Brexit on their business activity, with net balances at -13% and -15% respectively. This compares to manufacturing at -3% and construction at 9%.

Brexit knocks business activity for fourth month

For the fourth consecutive month, businesses reported they expected Brexit to negatively impact business activity (-9%). Although an improvement on December (-11%), the figure remains 3% below where it was a year ago.

More than a third (37%) of companies reported that Brexit has made it more difficult or expensive to find the right workers – although half (54%) said that it had not.

Hann-Ju Ho, Senior Economist, Lloyds Bank Commercial Banking commented: “Despite businesses ending 2018 on a low, it’s good to see they’ve started the year on a slightly more positive footing. The results for the manufacturing and construction sectors are particularly encouraging and we hope the picture will improve further as we move into February and beyond, if geopolitical uncertainties subside.”

Mixed picture across UK regions

Businesses in London were the most confident (36%), closely followed by the West Midlands (31%). The South East (23%) was the only region where January’s business confidence outstripped the region’s 2018 average.

Business confidence was lowest in the North East (1%) and Scotland (1%).

Regional variations extended to the expected impact of Brexit on business activity with the most negative sentiment
expressed by those in Northern Ireland (-28%), Scotland (-17%) and the South West (-17%). Firms in Wales (6%) and London (0%) were the most positive.

Paul Gordon, Managing Director for SME and Mid Corporates, Lloyds Bank Commercial Banking said: “Although somewhat muted, the slight uptick in business confidence nationally may be seen as a sign of the underlying resilience of the UK economy. In the coming months, we hope business confidence increases further as the community continues to feel more optimistic about what’s to come. Whatever lies ahead, we’ll be by the side of businesses and ready to offer expert guidance and tailored support.”

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.

• 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 2nd and 16th January 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.