30th September 2022

Business confidence stabilises after three month decline-Lloyds

Business confidence stabilised in September after falling for three consecutive months between June and August. The index remains at 16%, its joint lowest level since March 2021, according to the latest Lloyds Bank Business Barometer.

While business confidence remained below the long-term average of 28%, it is above the lowest levels seen in 2020 during the first COVID-19 wave(-33% in May 2020). Since companies were surveyed before the UK government’s Fiscal Statement on 23rd September the effect of the announcement on business confidence will be seen in next month’s data.

A tight labour market saw wage expectations increase, with 9%(up 4 points) of businesses now expecting to award a pay increase of at least 5% in the coming year. In addition, almost a third(29%) of businesses anticipate a 3% wage growth in the next twelve months-a new high up from 26% in August and nearly triple the 10% level in 2019 seen prior to the pandemic. Staffing expectations for the year ahead were stable this month, with a one-point rise to 39% for companies anticipating an expansion of their workforce. However, this was countered by 23% (up one point) expecting to reduce their headcount.

Businesses’ trading prospects remained broadly unchanged at 26%, with a one-point rise in businesses expressing prospects of stronger activity, which was offset by the same one-point rise in companies reporting a weaker outlook. Regarding the wider economy, an unchanged 41% of businesses indicated greater economic optimism. However, 36%(up two points) were more pessimistic, resulting in a two point decrease to a 19-month low of 5% for overall economic optimism.

Inflationary pressures meant the net balance of businesses intending to raise prices in the coming year reached a new high of 55% (up four points from August). This overall level reflected that 59% (up three points) of firms anticipate price rises for their product or service and 4% (down one point) expect a reduction.

Hann-Ju Ho, Senior Economist, Lloyds Bank Commercial Banking, said “It is encouraging to see business confidence stabilising after a three-month decline. Firms’ assessment of their own trading prospects also remained steady and continues to show some resilience during turbulent times. Yet, cost pressures remain, as more businesses look to raise prices to help protect their margins while wage pressures show little sign of abating at this stage. With the recent volatility in financial markets as well as the Government’s Growth Plan and energy cap announcements, it will be interesting to see how these measures affect business confidence.”

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