Business confidence falls to record low as economic shutdown continues

29 May 2020

The latest Lloyds Bank Business Barometer shows:

  • Overall business confidence fell further to -33% in May, matching the lowest level since December 2008 during the global financial crisis.
  • Confidence was above the national average in London, West Midlands and North of England, with six out of 12 regions reporting an increase from April.
  • Economic optimism fell to -42%, the lowest level since January 2009, while trading prospects remained unchanged  at a record low of -25%.
  • Hiring intentions dropped 12 points to a nine-year low of -29%, with 38% of firms expecting no wage increases over the next 12 months.
  • The retail, manufacturing and services sector all saw modest increases in confidence, though the construction sector fell sharply.

Overall business confidence fell in May by a further percentage point to -33%, according to the Lloyds Bank Commercial Banking Business Barometer, sitting at the all-time lowest level recorded in December 2008 during the global financial crisis. The decline illustrates that little has changed in terms of sentiment for UK businesses, following the sharp fall in confidence seen last month.

The results, which surveyed businesses between May 1 and May 18 showed that current trading prospects remained unchanged at a record low of -25%, sitting at its lowest level since the survey began in 2002, while economic optimism dropped a further three points to -42%.

Despite the survey period partly capturing the Government’s announcement of a slight easing of restrictions, firms’ assessment of their own hiring intentions fell an additional 12 points to -29%, the weakest levels in nine years. Only 15% of businesses expect to increase employment, down from 20% in April and those anticipating a reduction in the next twelve months stood at a record 44%. In addition, businesses that are anticipating a pay freeze increased to 38% from 34% in April, resulting in an average response rate by companies of 16% in the first three months of the year.

Responding specifically to the impact of the coronavirus, 68% of businesses stated a negative impact, a slight decrease from 74% in April, while 10% of firms say they are benefiting from it or saw no change from last month.

Hann-Ju Ho, Senior Economist, Lloyds Bank Commercial Banking, said: “Despite the results partly capturing the period since the Government’s announcement of an initial easing of restrictions, trading conditions remain difficult for most firms. Nevertheless, a further relaxation of constraints will enable more businesses to resume their activities.”

Confidence across the regions and sectors

From a regional perspective, despite all being in negative sentiment, six of the 12 regions reported a higher confidence in May. The North East was the least negative region at -20%. The South West was the most negative region at -51% followed by the South East at -45%.

In May, the construction sector saw the sharpest decline, falling 24 percentage points to -44%. However, all the three other major sectors saw a modest increase. The retail sector increased eight points to -25%, while manufacturing rose to -27% and services saw a small increase of four points to -18%. 

Paul Gordon, Managing Director for SME and Mid Corporates, Lloyds Bank Commercial Banking, said:“While May continued to show the unprecedented impact of the shutdown for businesses across the UK, it is important to see that now half of all regions are climbing back from the lowest levels seen last month.

"As Britain sees further easing of measures in the coming weeks, with more businesses re-opening, it is hoped that this will further improve businesses’ confidence. Government schemes and finance options continue to be made readily available to businesses so that they can be best placed and prepared to open once again in the months ahead.”