Firms anticipating higher employment in the year ahead reached its highest level since December 2018, with the net balance climbing 3 points to 17% (chart 2), according to the Lloyds Bank Business Barometer. This is the fifth consecutive increase, rising strongly from the -12% level in January and reflecting the fact that more than a third of businesses (34%) now expect to increase their workforce. However, nearly a fifth (18%) of businesses reported either significant difficulties in finding staff, or were unable to find staff with the right levels of skills and experience.
Business confidence remained at 33% in June, continuing above the long-term average (28%) for the third consecutive month while companies were increasingly upbeat about their trading prospects as sentiment improved to its highest level since November 2018 (up 2 points to 30%). Despite a marginal 1-point fall in economic optimism to 36% from last month’s five-year high, more than half of companies (51%, down from 53%) of businesses were still more optimistic about economic conditions.
In line with improving employment prospects, firms’ pricing expectations for their goods and services increased for a fifth straight month (chart 4) back to pre-pandemic levels. The net balance of firms expecting to increase their prices moved up three points to 36%, with 40% (up from 38%) anticipating higher prices and 4% (down from 5%) predicting lower prices.
Chart 1: Business confidence holds above the long-term average
Chart 2: Net hiring intentions continue to pick up
Hann-Ju Ho, Senior Economist, Lloyds Bank Commercial Banking, said: “A fifth consecutive monthly increase in trading prospects and employment expectations highlights the resilience of UK businesses as they continue to recover from the challenges presented by the pandemic. Although we must now wait slightly longer for the last remaining COVID-19 restrictions to ease, it’s an encouraging sign that firms continue to have strong overall confidence in the outlook for the UK economy, as well as their expectations for their own growth prospects.”
Chart 3: Pay pressures trend higher, but remain below pre-pandemic levels
Chart 4: Firms’ price expectations increase in recent months
Regional and sector insights
Differences in confidence between the UK’s regions and nations narrowed this month (chart 5). There were sizeable increases in Scotland (up 27 points to 42%), London (up 17 points to 41%) and the East of England (up 10 points to 36%). Along with the South West (36%), these were the most confident parts of the country. The largest falls, albeit from previously elevated levels, happened in Yorkshire and the Humber (down 14 points to 30%) and the East Midlands (down 9 points to 31%). There were smaller declines in the South East (down 6 points to 31%), Wales (down 6 points to 31%) and Northern Ireland (down 6 points to 11%).
The majority of responses were given before the various UK governments formally announced the delay to the removal of all limits on social contact, which was originally expected to happen on 21 June in England and close to that date in other parts of the UK. However, it is likely that anticipation of the delay may have had a small negative impact in confidence particularly in the retail sector (down eight points to 36%) while manufacturing also fell (down 18 points to 35%). Despite this, confidence remains at historically high levels across the broad industry sectors – in part due to services increasing by five points (31%) to its highest level in more than three years and construction remaining steady at 35%.
Paul Gordon, Managing Director for SME and Mid Corporates, Lloyds Bank Commercial Banking, said: “Despite a fall in business confidence in eight of the UK’s nations and regions from the highs of last month, the differences are narrowing. It’s pleasing to see such significant improvements in a number of regions, in particular Scotland and London, with both reporting strong increases in confidence. We can be optimistic that the increase in confidence in the services sector, as well as the overall historically high levels across the broad industry sectors, bodes well for businesses as we remain by their side on their road to recovery.”
Chart 5: Confidence increases strongly in Scotland, London and the East of England
Chart 6: Services confidence closes the gap with other industry sectors