Confidence among British businesses saw a decline in June, falling from an eight-year high, according to the latest analysis by Lloyds Banking Group. The Business Barometer, which measures overall business confidence by assessing trading prospects and economic optimism, showed a significant drop, indicating that while businesses remain generally positive, the exuberance of previous months has waned.
Decline in Business Confidence
The research revealed that business confidence fell by 9 points to 41% in June. This drop follows a sharp rise in May and brings confidence levels back in line with those seen during the first quarter of 2024. Despite the decline, the current confidence reading is still higher than the long-term average of 28%, pointing to a continued positive outlook from firms.
Trading Prospects and Economic Optimism
The Barometer highlighted that businesses’ views on their trading prospects remain relatively strong, with 53% of businesses reporting stronger output expectations and only 9% anticipating weaker output. However, the net balance fell by 10 points to 44%, the lowest reading since December 2023, suggesting that the initial optimism of the year is starting to ease.
Economic optimism among businesses also dipped slightly, with a seven-point drop to 39%. Despite this decline, this figure remains above the levels recorded in the first quarter of the year. In June, 55% of respondents felt more positive about the economy compared to three months ago, down from 62% in May, while 16% remained negative, unchanged from the previous month.
Staffing and Wage Growth Expectations
Expectations for staffing levels have also moderated. Nearly half of the businesses surveyed expect their workforce to increase over the next 12 months, while 16% anticipate a reduction in headcount. The net balance fell by 7 points to 32%, the lowest since March, yet still indicates positive hiring intentions overall.
Wage growth expectations similarly dipped. The share of businesses expecting pay growth between 4-5% fell to a one-year low. Although this figure remains higher than pre-Covid levels, the proportion of businesses expecting pay growth of more than 5% also decreased to a three-month low.
Sector Insights
June’s results showed mixed outcomes across different sectors. Confidence in the construction sector fell by 16 points to 42%, while the retail sector saw a 14-point drop to 35%. The services sector experienced an 11-point decline to 46%. Conversely, the manufacturing sector saw a slight increase, rising by two points to 51%.
Regional Confidence
Regionally, business confidence varied, with particularly strong sentiment in Yorkshire & the Humber, the North East, and the East Midlands. This regional disparity underscores the varied economic conditions and outlooks across the UK.
Expert Opinions
Hann-Ju Ho, Senior Economist at Lloyds Bank Commercial Banking, commented on the findings:
“These results suggest a slight drop in business confidence in June as firms’ trading outlook and economic optimism fell below levels seen in recent months. However, these results are still broadly in line with the positive readings we were seeing towards the start of the year.”
Paul Gordon, Managing Director for Relationship Management at Lloyds Bank Business & Commercial, added:
“It’s encouraging to see that businesses are still feeling optimistic, with business confidence currently sitting well above the long-term average for over a year. The regions saw a mixed picture, with confidence particularly strong in Yorkshire & the Humber, the North East, and the East Midlands. As we round up the first half of the year, it’s an opportune moment for businesses to review, set out their ambitions and know that we are here to support them as we move into the second half of the year.”
Conclusion
While business confidence in the UK has dipped from its recent highs, the overall outlook remains positive, significantly above the long-term average. The challenges posed by economic uncertainties and sector-specific issues are evident, but businesses continue to show resilience and optimism. As the year progresses, continued support and strategic planning will be essential to navigating the evolving economic landscape.
