Business confidence falls in January

New research by Lloyds Bank Business Barometer has shown that overall business confidence fell by three percentage points to -7% in January, reflecting renewed concerns about the pandemic and the impact on trading prospects.

As the current restrictions continue to have a significant negative impact on most firms 52% of companies have reported lower sales and 10% temporarily closed.

More than half of businesses (54%) said that the vaccine rollout has increased confidence in their trading prospects; however, only 16% expect sales in 2021 to return to or exceed pre-COVID-19 levels.

In terms of new EU trading arrangements, 6% reported serious disruptions leading to delays or higher costs, with a further 18% fearing future disruption

Whilst confidence remains the second-highest since May 2020, it suggests that worries about the new variant has dented previous optimism regarding vaccine rollout. This month’s dip in confidence was driven by a two percentage point fall in trading prospects to -5% and a four point fall in optimism regarding the wider economy to -9%.

In parallel, firms’ view of their employment prospects for the next year (chart 2) fell by to two percentage points to -12%, with 21% expecting to increase staff and 33% (up one point) anticipating a smaller workforce.

Overall business confidence is calculated by averaging the views of 1,200 companies on their business prospects and optimism about the UK economy. With many UK firms adapting to new EU trading arrangements, 6% reported experiencing serious disruptions leading to significant supply chain delays or higher costs to their business.

In addition, 16% of firms indicated slight, but manageable, delays while 18% felt no impact, but anticipate disruption in the future. Responding specifically to the current COVID-19 restrictions, businesses stated that these were having a negative impact on sales. More than half (52%) reported lower sales as a direct result of lockdown measures and 10%, were unable to operate or were temporarily closed.

However, 38% of businesses said that their turnover saw little impact or a slight increase. Responding to the Covid-19 vaccination programme, 54% said that the rollout has improved confidence in their trading prospects. Only 16%, however, expect their sales in 2021 or output to return to or surpass levels prior to the pandemic, while 38% see improving sales but expect sales to fall short of pre-COVID-19 levels for this year. However, nearly a quarter (23%) said that their business will continue to struggle despite the vaccine.

Hann-Ju Ho, Senior Economist, Lloyds Bank Commercial Banking, said “It has been a challenging start to the New Year for UK businesses adapting to a third national lockdown alongside the new EU trade arrangement taking effect. Nevertheless, while confidence remains below average, it is encouraging that business sentiment is still the second-highest since the low of May 2020. Overall, the vaccine rollout programme has lifted confidence and that will hopefully buoy business optimism in the coming months.”