Business confidence falls in December

British businesses became more downbeat about the economic outlook in December, with the biggest monthly decline in confidence in more than a year, according to the Lloyds Bank Business Barometer. The survey fell by seven points to 35% from November’s 21-month high of 42%, marking the largest monthly fall since August 2022.

Firms’ hiring intentions remained positive but the net balance eased back by 6 points to 29%. Still, compared with a year ago, confidence has improved quite markedly from 17% in December 2022. Moreover, confidence remains above the survey’s long-term historical average of 28%. Most firms said they anticipate stronger profitability and turnover in 2024. Firms’ priorities drive price and wage expectations At the sector level, confidence was strongest in retail but sentiment in wider services was less positive. Confidence was strongest in the North East and the East of England, but it fell in two-thirds of the UK’s regions or nations. The net balance of firms expecting to raise their prices in the year ahead fell by 2 points to 59%, snapping rises in the prior four months, but it remained high versus pre-Covid levels. Wage growth expectations for the next 12 months remained elevated relative to pre-furlough levels. These results are likely to reflect, at least in part, firms’ priorities of maintaining their margins and retaining staff.

Hann-Ju Ho, Senior Economist at Lloyds Bank said “This December data was collected following several key announcements, including energy prices rises and the UK economic outlook being revised down in the Autumn Statement. All of this will undoubtedly have had an impact on business confidence as we head into 2024.”

“Businesses are also balancing cost pressures with a challenging labour market that will see increases to minimum wage in April 2024, as perhaps indicated in the wage growth figures, at a time when they are managing staff retention and recruitment decisions. However, over the course of the year confidence has steadily increased from an average confidence of 25% in the first three months of 2023 and ending the year with a three-month average of 39% – an indication of the positive trajectory business has seen this year. This provides a healthier position to begin 2024 with, compared to 2023.”