Business confidence falls for first time in three months

This decline follows a four point rise in April to 14 per cent and brings the figures in line with confidence levels in March 2019.   

The net balance of firms reporting stronger trading prospects fell seven points to 17 per cent this month, while economic confidence was broadly steady, edging down one point to 2 per cent. Overall business confidence is calculated by averaging the views of 1,200 companies on their business prospects and optimism about the UK economy.

Business confidence levels remain below the long-term average of 24 per cent, averaging 11 per cent so far in 2019, compared with 28 per cent in 2018. Firms’ assessment of the expected impact the UK leaving the EU will have on their trading prospects reached a new low at -21 per cent (chart 3). While 19 per cent believe leaving the EU will have a positive impact, 40 per cent say it will have a negative impact.

In May, an unchanged one-third (33 per cent) of firms said they expect to increase their headcount in the year ahead, while 21 per cent (up from 19 per cent last month) predicted it would shrink. The proportion of firms reporting that they expect average pay growth of 2 per cent or more in the next twelve months fell to 25 per cent, the lowest since the question was first asked in January 2018.

Hann-Ju Ho, senior economist, Lloyds Bank Commercial Banking, said: “Overall business confidence continues to sit below the long-term average. A slight dip in confidence this month appears largely to reflect companies’ assessment of their own trading prospects for the coming year, and the anticipated impact of the UK leaving the EU. It’s encouraging to note that while we are seeing uncertainty impacting business confidence overall, optimism regarding the wider economy remains broadly steady.”

Overall business confidence fell in eight out of the 12 regions in May. The biggest decline was in the North East (down 17 points to ‑5 per cent), followed by London (down 9 points to 10 per cent), the South West and Scotland (both down 9 points to 0 per cent). Businesses in the East of England were the least confident, with an overall confidence of -6 per cent.

Yorkshire and the Humber was the most confident region in May, rising five points to 23 per cent. The West Midlands was the second most confident UK region (21 per cent), followed by the East Midlands and Wales (both 19 per cent).

Overall confidence rose among manufacturing businesses for the second consecutive month, up 5 points to a four-month high of 21 per cent. The sector was the most confident in both trading prospects and economic optimism.

The services sector continued to report the weakest overall confidence (down 5 points to 7 per cent), reflecting firms’ more negative economic optimism and the expected impact of the UK leaving the EU. Confidence also fell in construction (down 3 points to 12 per cent) and retail (down 5 points to 11 per cent).

Paul Gordon, managing director for SME and mid corporates, Lloyds Bank Commercial Banking, said: “Although there has been a fall in business confidence this month – in part due to the political climate at home and in arguably larger part due to the escalating US-China trade tensions – there continues to be improvements in confidence in some areas. The manufacturing sector and a number of the regions deliver stronger readings this month, suggesting the UK’s continued business resilience.”