Business confidence made a positive start to the year with strong gains for a second month in a row, rising by five points to 22% in January. This is the first back-to-back increase since September 2021, bringing business confidence to a six-month high and moving closer to the long-term average of 28%.  

The increase in business confidence was driven by a more optimistic assessment of the wider economy, with 47% (up four points) of firms expressing greater optimism and 30% (down five points) being more pessimistic, resulting in the net balance rising by nine points to 17%. 

Firms’ predictions of their own trading prospects also saw a gain with 46% (up one point) expecting stronger trading. However, 19% (up one point) anticipated weaker business activity, leaving the net balance unchanged at 27%. 

The overall hiring intentions of companies slightly improved with a net balance of 17% (up one point). This was based on 40% (down from 41%) of businesses surveyed saying that they expect to increase staffing levels over the coming year, but this was offset by a decline to 23% (from 25%) expecting to reduce their headcount.

Wage expectations eased in the first month of 2023 with 25% (down one point) expecting to increase pay by 3% or higher. In addition, a smaller proportion (6%, down two points) of firms anticipate making wage increases of 5% or greater in the year ahead. 

Rising costs fell for the first time in five months, with firms’ expectations for prices of their own goods or services down three points to 55% from the record high of 58% in December 2022. Overall, 61% of businesses (down from 62%) expect to charge more for their goods or services next year, while 6% (up from 4%) plan to lower prices. As a result, the net balance declined by three points. 

Hann-Ju Ho, senior economist Lloyds Bank Commercial Banking, said: “Business confidence continues to improve following the December boost. Firms are clearly more optimistic about the wider economy and this is driving the increase, helped by precursory signs that wage and other cost pressures may be easing.

“It is still a tough environment for businesses, with high energy bills remaining a concern during the winter months, but there are grounds for optimism for 2023 if inflation starts to trend lower.” 

Regional and sector insights

Confidence increased across half of the UK’s regions and nations, with the biggest increase seen in London, which rose to 37% up 29 points from 8%. Other regions saw strong growth, including the North West (47%, up seven points), North East (45%, up 11 points) and Wales (34%, up 16 points) as well as in Northern Ireland (16%, up 13 points). 

Confidence fell in Yorkshire and Humberside (12%, down 10 points), East Midlands (10%, down 18 points), South West (10%, down seven points) and South East (5%, down nine points). 

For the second month in a row, confidence in the manufacturing and service sectors increased, with manufacturing rising to 28% (up 15 points) and services up to 25% (up seven points).  Business confidence in construction was down two points to 27%, while retail confidence fell for the second month in a row to 7% (from 13%), the lowest level since February 2021. 

Paul Gordon, managing director for relationship management, Lloyds Bank Business and Commercial Banking, said: “After a challenging 2022, it’s heartening to see confidence rising for the second consecutive month. This is the first back to back increase since September 2021. There is no doubt that the business environment remains challenging and uncertainty still remains, but this improvement in optimism is very welcome as we start 2023.   

“With pay expectations tempering, trade expectations set to improve, and a clearer way forward on energy price support, this may give businesses a bit more certainty and the confidence they need to inspire investment and promote growth.”