Business confidence falls for first time in three months

The latest Lloyds Bank Business Barometer shows:

– Overall business confidence1 fell by four points to 10% in May; within this economic optimism was broadly steady.
– Firms in manufacturing posted a rise in confidence for the second consecutive month, although confidence fell in other sectors.
– Confidence was down in eight of the UK’s 12 regions, although Yorkshire and the Humber bucked the trend.

Overall business confidence in May fell for the first time in three months, dipping four points to 10% according to the latest Lloyds Bank Commercial Banking Business Barometer. This decline follows a four point rise in April to 14% 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% this month, while economic confidence was broadly steady, edging down one point to 2%. 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 average2 of 24%, averaging 11% so far in 2019, compared with 28% 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%. While 19% believe leaving the EU will have a positive impact, 40% say it will have a negative impact.

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