Business confidence rebounds to the highest level since August

The latest Lloyds Bank Business Barometer has found that business confidence surged in February reversing much of the previous five-month decline. The headline index jumped 12 points to 49%, its highest since August, and nearly erasing recent losses in one month. The Bank of England’s interest rate cut to 4.5% likely aided this improvement. Nevertheless, firms still cited rising costs and economic uncertainty as major challenges to growth and investment..

The boost was mainly due to increased economic optimism, with the net balance rising 18 points to 42%, the largest monthly increase since late 2020. Firms’ trading prospects remained strong, with the net balance up 6 points to 57%, slightly above last year’s peak. Confidence grew across all sectors, reaching multi-month highs in manufacturing, construction, retail and services. It rose in 11 of the 12 UK regions and nations, with the North East, North West and East of England leading. Net hiring intentions rebounded after three months of decline, with firms in manufacturing, retail and hospitality among sectors expecting higher headcounts for the coming year. This probably helped fuel the pickup in wage growth expectations. Concerns about rising costs and resilient trading prospects likely contributed to a five-month high in price expectations. The survey was conducted from February 3rd to 17th, during which the Bank of England reduced interest rates to 4.5%.

Hann-Ju Ho, Senior Economist at Lloyds Bank Commercial Banking said “The rise in business confidence demonstrates the resilience of UK businesses and their ability to navigate challenges, such as rising costs and uncertainty. Increased optimism, along with an expected uplift in trading prospects, is prompting businesses to invest in growing and upskilling their workforce, putting them in a prime position to capitalise on increased demand and drive future growth. This chimes with the expectations businesses set out at the beginning of the year, where they predicted a strong start to 2025, with the majority (70%) expecting to see their turnover increase in the year ahead. To sustain this positive momentum, it is important that businesses continue to innovate and adapt, ensuring they remain competitive and resilient to future challenges.”