Business confidence edged up in April following last month’s boost, increasing by one point to 33%, the highest level since May 2022. The increase maintains business confidence levels above the long-term average of 28%.
Business confidence was supported by increases in firms’ optimism in the wider economy, which also hit a near one year hit, rising five points to 28%. The rise in confidence followed an 11-point increase in March.
Trading prospects remained robust, as just over half of businesses (55%, up three points) reported stronger trading prospects. This was offset by 16% of companies (up four points) expecting a poorer performance in 2023. Overall, the net balance decreased slightly by one point to 39%.
Hiring intentions continued to improve for the fifth month in row, with the net balance up three points at 27%, the highest level since June 2022. 47% (up from 43%) are anticipating an increase in their workforce in the next 12 months while 20% (up one point) plan to reduce staffing levels.
The number of businesses anticipating average pay to increase by at least 3% rose to 27%, the highest since September 2022. This remains slightly below last year’s peak of 29%, but is significantly higher than pre-lockdown levels where, in 2019, an average of 10% of companies expected growth of at least 3% in pay.
However, three-fifths of businesses reported they intend to raise prices in the coming year (61%, up two points) while an unchanged 4% predict that prices will decrease. This leaves the net balance up two points at 57%, close to the all time high of 58% in December 2022 and above the average pre-pandemic level of 36% (in 2019).
Hann-Ju Ho, Senior Economist Lloyds Bank Commercial Banking, said: “The recent increases in business confidence indicate that the economy entered the second quarter of 2023 with positive momentum.
“The revival in the demand for labour, which improved for the fifth consecutive month, may account for the modest uptick in wage expectations for the next twelve months.
“While firms’ concerns on overall cost pressures have eased, there is little evidence that pricing expectations have declined which may impact wider pricing decisions for the remainder of 2023.”
Regional and sector insights
Confidence increased in seven out of the 13 regions and nations, with both the East of England and the East Midlands seeing the largest increases, rising 18 points (to 35% and 41% respectively). Other regions also saw strong growth, including in Northern Ireland (42%, up 16 points) and the South West (35% up 16 points) raising their business confidence levels above the UK average.
Business confidence in the service sector rose to 36% this month, the highest since May 2022, with sentiment particularly upbeat in hospitality and financial services. While the other sectors saw slight decreases, construction remained strong at 43% while manufacturing and retail remain above last year’s lowest levels.
Paul Gordon, Managing Director for Relationship Management, Lloyds Bank Business & Commercial Banking, said: “It is great to see business confidence continuing to increase, hitting a near one year high. Hiring intentions have also shown improvement since the start of the year, now sitting significantly higher than pre-lockdown levels. This is an encouraging sign of investment intent but that could be tempered by wage inflation pressures and a hot employment market.
Improving confidence levels will help give businesses a boost ahead of the King’s Coronation and as we head towards summer but, with majority of businesses also intending to raise their prices, this may add to existing inflationary pressures. Businesses may need to keep an eye on margins to help meet consumer expectations and we remain by their side to support them.”
Chart 1: Confidence above the long-term average
Chart 2: Positive momentum
Chart 3: Rising in the past five months
Chart 4: Pay expectations starting to tick higher
Chart 5: Pricing fluctuating near highs
Chart 6: Confidence rose in seven UK regions