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UK business confidence rising, but remains negative overall

Despite the Lloyds Bank Commercial Banking Business Barometer continuing to languish well below the long-term average and in negative territory, the latest reading showed overall business confidence improved by 8% against a backdrop of further easing of lockdown measures.

The Barometer, which surveyed businesses between August 3rd and 17th, showed improvements in both economic optimism and trading prospects with both reaching -14%. While still in negative territory, the 9 point increase in trading prospects is the largest monthly rise in more than 3 years. Economic optimism increased by 8 points.

COVID-19 impact

The effect of coronavirus continues to be keenly felt with nearly two thirds (62%) of businesses reporting it has negatively impacted them. This is a modest decrease on last month (66%), and is another indicator that businesses are slowly recovering following the easing of lockdown. The manufacturing and retail sectors had higher percentages of firms reporting a negative impact on demand at 71% and 64% respectively.

Firms’ assessment of their own hiring intentions improved slightly this month. The three percentage point rise took the reading to -20%. A fifth (19%) of businesses expected to increase employment over the next 12 months, a two-point increase on July. Some 39% of businesses anticipate they will be reducing their headcount, down 1% on last month.

Of those businesses with staff still on furlough, only 18% expect to be able to retain all of them. In addition, a third (33%) of businesses anticipate a pay freeze. Although this is down three percentage points on July, it remains well above the 14% recorded at the start of the year.

“With business confidence sitting well below the long-term average, and official data for Q2 confirming the UK re-entered recession, the shape of any economic recovery remains highly uncertain," commented Hann-Ju Ho, senior economist at Lloyds Bank Commercial Banking. "Nevertheless, it is encouraging to see gradual improvements in trading prospects and economic optimism, albeit from a low base, which will hopefully continue over the coming months.”

Confidence across the regions and sectors

The South East became the first region to report a net positive result since March, with confidence jumping 32 points to 1% in August. That compares to -31% in July.

Businesses in the South East weren’t alone in reporting higher confidence, with nine of the UK’s 12 regions edging up. The North East (-5%) and North West (-10%) followed on from the South East. At the other end of the scale, firms in Scotland - despite registering an improvement - were the most negative at -35%, followed by Northern Ireland (-27%) and the South West (-26%).

All four major industry sectors reported confidence at the highest levels since March. Manufacturing saw the sharpest increase of 14 percentage points to -7%, while construction rose 11 percentage points to -11%. The retail sector rose to -8% and services increased to -18% (chart 4).

“Tentative signs of improving sentiment continue and it’s encouraging to see businesses responding to the coronavirus disruption with continued resilience," said Paul Gordon, managing director for SME and Mid Corporates at Lloyds Bank Commercial Banking. “If we look regionally, the reinstatement of lockdown measures in the North West and East Midlands doesn’t appear to have dampened spirits and we hope possible future localised lockdowns won’t either. Time will tell how even the return to growth is but we stand by ready to help local employers build back better.”

Methodology

The Business Barometer results provide early signals about UK economic trends. The survey started in January 2002 and research is carried out monthly on behalf of Lloyds Bank by BDRC Continental. This survey was conducted with 1,200 companies from 3-17 August covering all sectors and regions of the UK. Prior to January 2018, the fieldwork was based on 200-300 companies.

The results are reweighted to match proportions by size, sector and region of the total business population, as published by the Department for Business, Energy and Industrial Strategy and the Office for National Statistics.

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