Business confidence falls for fifth consecutive month

British businesses increased pessimism in January, marking five consecutive months of declining corporate confidence according to the Lloyds Bank Business Barometer.The Barometer fell by two points to 37%, its lowest level in a year, following a £25 billion tax increase announced in October. Despite the dip, confidence is still above the long-term average of 29%.

In previous years, sentiment had been influenced by wider macroeconomic factors such as the Covid-19 pandemic and the energy crisis. The recent dips, however, have been more gradual, reflecting varied performance both across, and within, sectors.

Economic optimism decreased in January. For the fourth time in five months, firms taking part in the survey said they felt less positive about the economy, resulting in the score moving down 7 points from December to 24%. Currently, 52% of companies feel more optimistic about the economy, while 28% feel more pessimistic.

The results for trading prospects, however, suggest respondents felt more confident about the future of their own businesses. The net balance rose by 4 points to 51%, to almost fully rebound from December’s six-month low. 60% of companies are more optimistic about their output over the next 12 months, whereas only 9% were less positive and anticipated less activity.

The Barometer also found that the proportion of businesses planning to hire new staff fell marginally. Almost half of the companies that took part (49%) said they expect to increase their staff numbers in the next 12 months, whereas 17% were planning to reduce their headcount. The result means that the net balance fell 1 point to 32% – the lowest level since June 2024.

In recent months, the most significant changes were found in the retail and services sectors, although both showed modest improvements this month. Demand for labour in some parts of the services sector, including business services and health-related services, remains relatively upbeat.

Hann-Ju Ho, Senior Economist, Lloyds Bank Commercial Banking said “Changes in confidence can sometimes be sudden and sharp, but what we have seen recently has been a more gradual and measured decrease over time.

“The figures for trading prospects show promise with businesses signalling more resilience and assurance in their ability to weather perceived economic headwinds. The regional picture is similarly a cause for optimism, with seven regions reporting higher confidence meaning it is the first time since July there has been more confidence rises than falls regionally.”

“Elsewhere, the results for hiring prospects are in line with other trends from this month’s survey – dipping slightly by 1 point to 32%. Price expectations have fallen too, for the third month out of four”.

Fewer companies plan to increase their prices next year. Almost two-thirds of businesses (61%) said they expect to charge more for goods and services (a decrease from 64% in December), while an unchanged 2% plan to lower their prices.

The result means the overall balance dropped by 3 points to 59%, marking a five-month low. Recently, the most significant declines in price expectations have been observed in manufacturing and construction, with smaller decreases in retail and services. Price expectations, however, remain elevated relative to pre-pandemic levels.

There were similar falls in manufacturing, construction and retail this month, with a slight increase in services. Confidence fell to 38% in manufacturing (down 4 points), 36% in construction (down 5 points), and 40 in retail (down 3 points). However, confidence in services increased by 3 points to 38%. These results come within a general trend of larger confidence declines in retail and services in recent months. Within the services sector, confidence has notably fallen in hospitality but has remained more stable in business services and health-related services.

Paul Kempster,  Managing Director for Commercial Banking Coverage, Lloyds Business & Commercial said “As we begin 2025, the results of our survey show that, whilst business-owners have mixed views about the economy, they have a strong determination to ensure their businesses can stand up to any challenges they might face. That resilience could prove to be a real benefit for the UK economy.

“With confidence dipping in some sectors this month – particularly in retail and manufacturing – it’s more important than ever that we show our commitment to businesses, providing the right guidance needed to help them grow and thrive. It’s clear the UK has what it takes to deliver growth, and we’ll continue Helping Britain Prosper to realise our collective potential.”