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UK business confidence at 15-month low as cost of living crisis bites

·Business Reporter, Yahoo Finance UK
·3-min read
A plaza in Canary Wharf in east London. Business confidence is at its lowest since March 2021
UK business confidence is at a 15-month low. More than half (56%) of businesses said they planned to increase their prices as they anticipate higher prices for their products or services in the year to come. Photo: Press Association

UK business confidence slumped to a 15-month low in June as the cost of living squeeze intensified.

According to the Lloyds Bank (LLOY.L) business barometer, business confidence fell 10 points during the month to a low of 28%.

This was the lowest level since March 2021 when the economy emerged from the second wave of COVID-19.

It comes as inflation reached its highest level for 40 years at 9.1% as the cost of living pressures on firms and households continue to grow.

However, the level of confidence for June is equivalent to the barometer’s long-term average of 28% and consistent with some historic GDP growth and the continued relative stability of business confidence around the long-term average, Lloyds said.

Chart: Lloyds. BVA, BDRC
Chart: Lloyds. BVA, BDRC

More than half (56%) of businesses said they planned to increase their prices as they anticipate higher prices for their products or services in the year to come.

Meanwhile, close to half (49%) of all firms reported stronger trading prospects, while 15% (up from 13%) were less positive, leading to an 8-point fall to 34%, back to its March level.

The report also found that some 49% of businesses (down from 56% in April) were more optimistic about the economy, while 27% were less optimistic about the economy, up from 23%.

This resulted in a fall in the net balance by 11 points to 22%, the third decline in the past four months.

Read more: What is stagflation and can it lead to a recession?

“Business confidence declined this month, suggesting that the momentum for growth is moderating, Hann-Ju Ho, senior economist at Lloyds Bank Commercial Banking, said.

“Firms remain broadly positive but face several challenges ahead, including concerns around higher costs and slowing demand. If these trends continue, businesses may have less scope to pass on higher costs to support their margins.”

On a regional level, the East of England was the only area to see an increase in business confidence this month, up 17 points to 31%. The rise in confidence reaffirms the recent trend in the East of England to be above the national average.

The strongest region was the North West at 42% (down 2 points) with a modest fall in confidence. The biggest regional falls in business confidence were in London (down 28 points, to 35%) and the West Midlands (down 23 points to 30%).

In Scotland, there was a decrease of 15 points to 27%, with the North East and Yorkshire & Humber falling eight and seven points respectively, settling around the UK average of 28%.

The remainder of the UK regions - East Midlands, Wales, Northern Ireland, the South East and the South West - saw decreases, each falling below the national average.

Read more: More than two-thirds of UK businesses facing skills shortage

Confidence among businesses in the manufacturing and construction sectors likewise declined, reflecting lower optimism in the economy.

Service sector confidence fell to its lowest in a year, at 25%, showing weaknesses in hospitality, though offset by stronger confidence in business services. Confidence in retail businesses edged up this month four points from 27% to 31%.

Paul Gordon, managing director for SME and mid corporates at Lloyds said: “This is a challenging time for businesses and we know that there is caution about what lies ahead in the coming months.

“With concerns about a potential economic slowdown, it is important that businesses continue to keep a tight rein on input costs where they can and a close watch on profit margins.

“Seeking advice at a time like this, sooner rather than later, can make all the difference and I would encourage business owners to be proactive and use their support networks, including their bank, to plan ahead. At Lloyds we remain by the side of businesses to help them navigate the challenges they face.”

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