Business confidence on the rise

Despite the confidence, the latest  Barometer figures continue to languish well below the long-term average and in negative territory, overall business confidence improved by eight percentage points against a backdrop of further easing of lockdown measures.

The Barometer, which surveyed businesses between August 3^rd and 17^th, showed improvements in both economic optimism and trading prospects with both reaching -14%. While still in negative territory, the 9 point increase in trading prospects is the largest monthly rise in more than 3 years. Economic optimism increased by 8 points.

The effect of coronavirus continues to be keenly felt with nearly two thirds (62%) of businesses reporting it has negatively impacted them. This is a modest decrease on last month (66%), and is another indicator that businesses are slowly recovering following the easing of lockdown. The manufacturing and retail sectors had higher percentages of firms reporting a negative impact on demand at 71% and 64% respectively.

Firms’ assessment of their own hiring intentions improved slightly this month. The three percentage point rise took the reading to -20%. A fifth (19%) of businesses expected to increase employment over the next 12 months, a two-point increase on July.  39% of businesses anticipate they’ll be reducing their headcount, down 1% on last month.

Of those businesses with staff still on furlough, only 18% expect to be able to retain all of them. In addition, a third (33%) of businesses anticipate a pay freeze. Although this is down three percentage points on July, it remains well above the 14% recorded at the start of the year.

Hann-Ju Ho, Senior Economist, Lloyds Bank Commercial Banking, said “With business confidence sitting well below the long-term average, and official data for Q2 confirming the UK re-entered recession, the shape of any economic recovery remains highly uncertain. Nevertheless, it is encouraging to see gradual improvements in trading prospects and economic optimism, albeit from a low base, which will hopefully continue over the coming months.”

The South East became the first region to report a net positive result since March, with confidence jumping 32 points to 1% in August. That compares to -31% in July.

Businesses in the South East weren’t alone in reporting higher confidence, with nine of the UK’s 12 regions edging up. The North East (-5%) and North West (-10%) followed on from the South East. At the other end of the scale, firms in Scotland – despite registering an improvement – were the most negative at -35%, followed by Northern Ireland (-27%) and the South West (-26%).

All four major industry sectors reported confidence at the highest levels since March. Manufacturing saw the sharpest increase of 14 percentage points to -7%, while construction rose 11 percentage points to -11%. The retail sector rose to -8% and services increased to -18% .

Paul Gordon, Managing Director for SME and Mid Corporates, Lloyds Bank Commercial Banking, said “Tentative signs of improving sentiment continue and it’s encouraging to see businesses responding to the coronavirus disruption with continued resilience. The Eat Out to Help Out scheme, finishing on Monday, might be behind the notable improvement of 16 points in hospitality and leisure. While that only takes the subsector reading to -22%, any improvement should be welcomed at this stage and the sector will be hoping the consumer confidence boosts carries on long after the incentive ends.”

“If we look regionally, the reinstatement of lockdown measures in the North West and East Midlands doesn’t appear to have dampened spirits and we hope possible future localised lockdowns won’t either. Time will tell how even the return to growth is but we stand by ready to help local employers build back better.”