Research by Lloyds Bank shows that business confidence has climbed back to levels not seen since before Russia’s invasion of Ukraine and the subsequent energy crisis.
The rise in business confidence is significantly above the long-term average of 28%, and has been driven by increased trading prospects for the year ahead, greater optimism in the economy and more companies expecting to hire staff. The increase in November followed a three point rise in October, a sharp contrast to the 15% business confidence figure we say in October 2022.
The Barometer survey, which was conducted before the chancellor’s Autumn Statement on 22 November, shows firms’ trading prospects were up this month with 56% (up two points) of businesses anticipating stronger activity in the next 12 months, compared with 8% (down two points) expecting weaker outcomes. This resulted in the net balance rising to a near six-year high, four points to 48% versus 44% in October. The last time the trading prospects net balance reached 48% was in December 2017.
Optimism about the wider economy also increased, with 57% (up one point) of firms reporting greater optimism, while 19% (down two points) were less upbeat. The net balance therefore rose three points to 37% compared to 34% in October.
Hann-Ju Ho, senior economist, Lloyds Bank Commercial Banking, said “Business confidence rising to a 21-month high shows the resilience of UK companies, as both trading prospects and economic optimism continue to rise.”
“It’s encouraging to see signs that wage expectations may be stabilising, even against the backdrop of hiring intentions increasing to an 18-month high. Price indicators in the survey are similarly up, with our data continuing to show that firms are still safeguarding their profit margins in response to past rises in interest rates, wage increase pressures, and the prospect of higher energy prices again this winter.”
“Our next survey in December will reveal how firms are digesting the measures announced in the chancellor’s Autumn Statement last week as they navigate the busy festive season and make plans for 2024.”
The pricing expectations of companies reached a new high for 2023 in November with a fourth consecutive monthly increase. 64% (up two points) of firms plan to raise their prices with an unchanged 3% planning to reduce them. This results in a net balance increase of two points to 61%.
Firms in the services industry reported an increase in confidence to 46% (up three points), the highest level for over two years (since September 2021), reflecting broad-based optimism in the sector. Retail confidence also rose for a second month to 42% (up five points), while sentiment among manufacturing firms reached a five-month high of 45% (up nine points) in contrast with recent shortfalls. Construction firms’ confidence improved for the first time in three months to 35% (up four points), but this still lags other sectors.
Paul Gordon, Managing Director for relationship management, Lloyds Bank Business & Commercial Banking said “Last month showed strong performance across a number of sectors, with the services industry showing material gains as confidence reached the highest level since September 2021. We’ve also seen a real turnaround in sentiment for manufacturers, with business confidence at a five-month high, reflecting the expectation among many firms that interest rates have now peaked and may begin to fall next year.”
“Retail confidence continued to climb, up five points to 42% and with consumer confidence showing a sharp rise in a recent key tracker, businesses are certainly hopeful for the future.”
“However, recent increases in energy costs and rising oil prices will undoubtedly have an impact on consumers and businesses alike. If businesses can look to their future financial stability now and ensure cashflow remains a priority, that should put them in good stead for the months ahead.”