Lloyds: business confidence rises but remains at 12 month low

Despite this improvement, the figure remains among the lowest seen in the last 12 months and is well below the level of confidence businesses reported at the start of 2018 (35 per cent).

Marginal improvement in confidence was driven by an increase in economic optimism, which has risen by 3 points since December to 0 per cent.

Disappointingly, employment expectations for the coming year have fallen for the third time in four months. The net balance declined by 3 points to 14 per cent, with just over a third (34 per cent) expecting to add to their headcount while 20 per cent anticipate reducing it.

The Lloyds Bank Business Barometer highlights greater resilience in the manufacturing and construction sectors where hiring intentions were strongest (30 per cent and 26 per cent respectively) and business confidence highest (28 per cent and 30 per cent respectively).

Meanwhile, hiring intentions in retail and service sectors fell to 9 per cent and 8 per cent respectively. This caution is reflected in business confidence too, where confidence fell for the second month in a row to 14 per cent in retail and 19 per cent in services.

Firms in the retail and service sectors were also the most negative about the expected impact of Brexit on their business activity, with net balances at -13 per cent and -15 per cent respectively. This compares to manufacturing at -3 per cent and construction at 9 per cent.

For the fourth consecutive month, businesses reported they expected Brexit to negatively impact business activity (-9 per cent). Although an improvement on December (-11 per cent), the figure remains 3 per cent below where it was a year ago.

More than a third (37 per cent) of companies reported that Brexit has made it more difficult or expensive to find the right workers – although half (54 per cent) said that it had not.

Hann-Ju Ho, senior economist, Lloyds Bank Commercial Banking, said: “Despite businesses ending 2018 on a low, it’s good to see they’ve started the year on a slightly more positive footing. The results for the manufacturing and construction sectors are particularly encouraging and we hope the picture will improve further as we move into February and beyond, if geopolitical uncertainties subside.”

Businesses in London were the most confident (36 per cent), closely followed by the West Midlands (31 per cent). The South East (23 per cent) was the only region where January’s business confidence outstripped the region’s 2018 average.

Business confidence was lowest in the North East (1 per cent) and Scotland (1 per cent).

Regional variations extended to the expected impact of Brexit on business activity with the most negative sentiment expressed by those in Northern Ireland (-28 per cent), Scotland (-17 per cent) and the South West (-17 per cent). Firms in Wales (6 per cent) and London (0 per cent) were the most positive.

Paul Gordon, managing director for SME and mid corporates, Lloyds Bank Commercial Banking said: “Although somewhat muted, the slight uptick in business confidence nationally may be seen as a sign of the underlying resilience of the UK economy. In the coming months, we hope business confidence increases further as the community continues to feel more optimistic about what’s to come. Whatever lies ahead, we’ll be by the side of businesses and ready to offer expert guidance and tailored support.”