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UK business confidence at record high as furloughed staff return

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Office workers and commuters walk through Canary Wharf in London
London remained the most confident at 65%, boosted by employment expectations. Photo: Victoria Jones/PA via Getty Images

Business confidence in the UK hit its second highest level since March 2020 last month, as furloughed staff returned to work.

According to Lloyds Bank (LLOY.L) Business Barometer, which surveyed 1,200 firms from 1 October to 15 October, overall confidence stood at 43%, a slight dip from September’s 46%, but well above the long-term average of 28%.

Sentiment remained strong during the month, and the net balance for firms’ own trading prospects in the year ahead was down by just one point, despite rising energy costs and ongoing supply chain disruptions.

Six of the 12 regions and nations saw confidence improve or remain stable, with London remaining the most confident at 65%, boosted by employment expectations, followed by the North East at 61%.

The other regions that saw an increase were the East Midlands (up seven points to 55%), West Midlands (up four points to 50%), the South West (up one point to 48%) and the East of England (up three points to 33%).

However, confidence slipped in the North West, Yorkshire and the Humber, although it was still close to the national average.

Business confidence dipped slightly in October, however it was the second highest level since the start of the pandemic. Chart: Lloyds Bank Business Barometer
Business confidence dipped slightly in October, however it was the second highest level since the start of the pandemic. Chart: Lloyds Bank Business Barometer

The research, which was conducted before the chancellor’s Autumn Budget, showed some positive findings on employment, which “may point towards the easing of staff shortages suffered in some sectors”, Lloyds said.

Six in 10 (60%) British companies that have furloughed staff are looking to bring them all back said they planned to bring back more than half of employees on furlough, while 30% of firms expect more than half to return.

Some 48% of businesses also said that it has become easier to hire people with the right skills or experience since the end of the Coronavirus job retention scheme.

In a further sign of continued strength in the UK’s employment, the net balance of businesses expecting to increase staffing levels in the coming 12 months was at 37% (down one from 38%) having jumped by 20 points in September.

In addition, firms expecting at least a 2% or 3% increase in average wage growth over the next year remained unchanged at 43% and 25% respectively, having increased from 25% and 12% three months ago.

Read more: Small business confidence swells amid bank holiday boom predictions

Supply-chain disruptions and rising energy costs had a relatively limited impact on overall business optimism, but there was an increase in pricing expectations, including raw materials and staffing.

The data showed that 45% of businesses expect to increase their prices, up eight points from 37%, surpassing the previous high of 44% seen in March and April 2018. This indicated that firms continue to consider passing these costs onto customers.

From a sector perspective, manufacturing remained the most optimistic, with trading prospects being particularly positive.

Almost 70% of manufacturing firms are planning on bringing all furloughed staff back, more than any other sector, however, these firms are also less likely to say it is easier to find people with the right skills and experience.

In contrast, business confidence in retail and services fell slightly to 37% (down five points from 42%) and 43% (down four points from 47%) respectively. Although they are still higher than three months ago.

Hann-Ju Ho, senior economist at Lloyds Bank Commercial Banking, said: “While economic optimism saw a slight dent in October due to rising costs and the ongoing supply chain issues, it is clear that firms are still feeling relatively buoyant as overall business confidence remains high and above the long term average.

“With 60% of firms saying that they expect to bring all their furloughed staff back to work, and a further thirty percent intending to bring back more than half, it should bode well for the labour market as we head into the winter.”

Watch: Key takeaways from UK's Autumn Budget

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