Business confidence falls for the first time in five months, as recovery slows

30 October 2020

  • Overall business confidence fell by seven percentage points to -18% for the first time since May, as new lockdown restrictions introduced.
  • The Services sector registered the biggest decline in confidence to -24%, while sentiment in Manufacturing and Retail was marginally higher.
  • Regionally, confidence fell in all but three regions, with the North West, South West and Northern Ireland reporting improvements. In contrast, Yorkshire & the Humber, London and East Midlands recorded the largest declines in confidence.

Overall business confidence declined for the first time in five months in October, falling by seven percentage points to -18%, according to the Lloyds Bank Commercial Banking Business Barometer. 

While confidence remains above the lowest levels recorded since the pandemic began in March (-33% in May), it continues to sit well below the long-term average of 28%.

The results, which surveyed businesses between October 1 and October 15, were set against the backdrop of recently introduced regional lockdowns.

This month’s drop in business confidence was mainly driven  by weaker optimism about the wider economy, with the net balance dropping by thirteen points to -23% and trading prospects falling by one percentage point to -13%.  Overall business confidence is calculated by averaging the views of 1,200 companies on their business prospects and optimism about the UK economy.

The recent coronavirus lockdown restrictions continue to impact sentiment, with firms’ assessment of their own business prospects falling marginally by one point to -13%, sitting at a historically weak level. In addition, business’ evaluation of their hiring intentions also decreased by two percentage points to -18%, well below  pre-pandemic levels of 15%.

Hann-Ju Ho, Senior Economist, Lloyds Bank Commercial Banking, said: “The resurgence in coronavirus cases and the reintroduction of local lockdown measures saw overall business confidence fall back sharply this month. Added to that are ongoing uncertainties regarding new trading arrangements with the EU in January. All of this makes the economic outlook uncertain and the period ahead will be pivotal for businesses as they navigate the winter months and continue to adapt to the evolving landscape.”

Services confidence dropped, but resilience elsewhere

In the industry sectors, Services slipped back, with confidence declining by fourteen percentage points to -24%. The decline was driven by hospitality and arts and leisure grappling with the implications of recently introduced measures to tackle the pandemic. Manufacturing and Retail logged modest improvements, up three points to -15% and up one point to -7% respectively.

From a regional perspective, Yorkshire & Humber recorded the sharpest decline in confidence, down twenty one points to -29%, closely followed by London and East Midlands falling by twenty points to -24% and fourteen points to -18% respectively (chart 3). Of the remaining regions, sentiment improved in the North West (up eleven percentage points to -2%), mainly driven by the manufacturing and professional services sectors which continued to operate at close to full capacity. The South West and Northern Ireland recorded an increase too, up twelve points to -22% and up thirteen points to -11% respectively.

Paul Gordon, Managing Director for SME and Mid Corporates, Lloyds Bank Commercial Banking, said: “The recent lockdown restrictions have understandably had a negative impact on the Services sector, especially arts and leisure businesses that have often borne the brunt of evolving preventive measures. Having said that, we are fast approaching the festive season, which might bring a boost for the sector – although it remains to be seen how this will unfold in the midst of the pandemic.

 While the recent developments have seen some heavy impact across the regions, it is reassuring to see that some have recorded improvements and are navigating the headwinds of recovery with resilience. Although it is difficult to predict the road ahead, we will remain by the side of businesses as they face into these unprecedented times.”