Business confidence edges up
Overall business confidence improved for the second consecutive month in July, rising eight percentage points according to the Lloyds Bank Commercial Banking Business Barometer. The increase, helped by the further easing of lockdown restrictions, takes the balance to the highest level seen since March, but remains well below the long term average (See chart 1).
The results, which surveyed businesses between July 1 and July 15 also showed economic sentiment improved for a third consecutive month by 11 points to -22%. In addition, business trading prospects for the year ahead increased four points from June’s all-time low to -23%. Overall business confidence is calculated by averaging the views of 1,200 companies on their business prospects and optimism about the UK economy.
Responding specifically to the impact of the coronavirus, 66% of businesses stated a negative impact, a decrease from 68% in June. However, the slight relaxation of social distancing measures saw most businesses reporting an improvement in demand with 55% of firms stating they were able to operate fully. Yet, when asked about job retention among firms with furloughed staff, only 16% of all businesses plan to retain all of their furloughed employees, with 24% expected to retain more than 90% of their staff.
Firms’ assessment of their own hiring intentions improved slightly by two percentage points to -23%. Only 17% of businesses expect to increase employment over the next 12 months, up one point from June, while 40% are anticipating a reduction, down from 41%. In addition, businesses that are anticipating a pay freeze fell a percentage point to 36%. (See chart 2).
Chart 1: Overall confidence recovering from a low point
Chart 2: More businesses expect to reduce, rather than increase, their staffing levels
Source: Lloyds Bank Business Barometer (July 2020), BVA BDRC
Hann-Ju Ho, senior economist, Lloyds Bank Commercial Banking, said: “While the results suggest the economy is starting to see some improvement, economic confidence still remains in deep negative territory.
The government announcement of the slight easing of social distancing measures has now enabled over half of businesses to reach their capacity and resume their usual activities. However, how businesses will continue to respond to the Job Retention Scheme will be key in the coming months.”
Confidence across regions and sectors
From a regional perspective, confidence increased in ten out of the twelve UK regions in July. The North East was the least negative region at -3% and the most negative region was Scotland sitting at -31% (See chart 3).
In July, the retail sector increased 11 points to -12%, manufacturing increased 14 points to -21% and services rose 10 points to -26%. However, construction fell eight points to -22% after last month’s strong increase of 30 percentage points.
Paul Gordon, managing director for SME and Mid Corporates, Lloyds Bank Commercial Banking, said: “With only one region reporting a fall in sentiment, we are starting to see sentiment lift for the vast majority of regions across the UK. The easing of lockdown restrictions, including the reopening of the economy and the relaxation of social distancing rules, has resulted in most businesses reporting improvements in demand, from a record-low base. This is key for the summer season, which will allow businesses to continue to open their doors and trade in the weeks and months ahead.”
Chart 3: Confidence in July increased in most regions
Chart 4: Sector sentiment improving from a low base
Source: Lloyds Bank Business Barometer (July 2020), BVA BDRC
