Business confidence climbs

Business confidence has reached the highest level since May 2022, according to the latest monthly sentiment index by Lloyds Bank. Confidence reached 33% in April, marking a slight increase from 32% recorded in March. 

The survey of 1,200 businesses found that overall economic optimism rose by five points to 28%, which is also close to a one-year high. The increase follows an 11-point rise in March. The survey shows that 61% of businesses expect to increase their prices in the coming year, while 47% are looking to recruit. Pay growth has hit its highest level in seven months, with 27% of businesses expecting to increase wages by at least 3%. .”

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%.

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.”

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.”