Business confidence reached four-month high during July as external environment calmed

Business confidence in the UK hit a four-month high, rising five points to 49% in July, two points higher than the 12-month average of 47%, according to the Lloyds Business Barometer. This was driven by an increase in economic optimism, reflecting the decline in global energy prices, the Bank of England holding interest rates and the announcement of an interim peace agreement in the Middle East at the time of the fieldwork for the survey.  

The overall business confidence figure is an average of economic optimism and trading outlook.
 

Economic optimism

Optimism in the wider economy rose 11 points to 42%, compared to a 12-month average of 37%. Of those surveyed, 59% said they were optimistic (up four points from June) in the wider economy, while those who felt pessimistic decreased by seven points to 17%. The main factors cited by firms who felt more positive this month were, stronger customer demand, improving interest rates or financial conditions and better economic news.  

Trading outlook 

Businesses’ own trading outlook remained unchanged at 56% in July, compared to a 12-month average of 57%. Sixty-five percent of firms (up one point from June) expect stronger output over the year ahead, while those expecting weaker activity increased one point to 9%. Among firms expecting stronger activity, the main factors were stronger customer demand, increased investment in capacity or tech and improved supply chain conditions.

Domestic vs international 

Domestic firms reported a 22-point increase in economic optimism to 25%. While International firms saw a more modest rise from 47% to 51%. Both increases were driven by stronger customer demand, improving financial conditions and better economic news.

Trading outlook also increased for domestic firms, up six points to 43%, driven by stronger customer demand, increase investment in technology and improved supply chain conditions. However international firms saw a decline of three points to 62%, driven by higher cost pressures, economic uncertainty and staffing shortages.

Turnover size

Smaller firms with turnover below £1 million reported a strong increase in business confidence, up 11 points to 48%, driven by stronger market demand, improving financial conditions and better economic news.

Sector insight

Business confidence among manufacturing firms rose 14 points to 47%, compared to a 12-month average of 45%. This was driven by stronger customer demand, improving cost pressures and better economic news. Business confidence amongst construction firms increased 10 points to 56%, compared to a 12-month average of 47%. This was driven also by stronger customer demand, improving financial conditions and industry-specific improvements.

Service sector firms saw an increase of four points to 49%, against a 12-month average of 46%. This was driven by, similarly to those in other sectors, stronger customer demand, improving financial conditions and better economic news.

Retail firms remained broadly stable, down two points to 43%, compared to a 12-month average of 46% driven by higher cost pressures, economic uncertainty and capacity constraints. 

Regional insights 

Confidence rose in seven of the UK’s 12 regions and nations, with the North East, Yorkshire & Humber, and the West Midlands all reporting strong increases and leading the rankings. However, sentiment fell in the South West, Scotland, Northern Ireland, and London.

The East of England saw the biggest increase, up 30 points to 53%. Wales and the South East also saw notable improvements.