UK business confidence climbs to highest since April 2017

·3 min read
The secondary central business district of Canary Wharf is pictured as the sun sets in London
The report showed that pay growth expectations also reached a three-year high, with more than a third of businesses predicting rises of at least 2% over the next 12 months. Photo: Justin Tallis/AFP via Getty Images

Business confidence in Britain rose to its highest level since April 2017 as businesses became more optimistic in their trading prospects and expected stronger activity in the year ahead.

According to the Lloyds Bank Business Barometer, confidence climbed six points to 36% in August, while overall economic optimism also increased by 6%. This came after a slight dip in July.

The report showed that pay growth expectations also reached a three-year high, with more than a third of businesses predicting rises of at least 2% over the next 12 months.

Companies anticipating a 3%-plus wage growth increased by five points to 17%, a record level since the question was first asked in 2018. However, the net balance of firms’ expecting to increase their headcount remains at last month’s level (18%).

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Lloyds revealed that confidence increased in nine out of the 12 UK regions and nations last month, with particularly strong rises in the North West (up 26 points to 64%) and the East of England (up 14 points to 39%). Smaller increases were seen in the North East, which rose 6 points to 46%, and London (a rise of 4 points to 41%), with these four regions now being the most confident in the UK.

For the North West, East of England and North East, confidence was at its highest since the survey sample was expanded in 2018.

Increases in confidence were also recorded for Scotland (34%), the South East (32%), the South West (37%) and Wales (19%), although the level in Wales was still the second lowest in the UK.

Meanwhile Northern Ireland was back in positive territory at a reading of 18%, from -6% in July. It remains the region of the UK with the lowest level of confidence.

Three regions in the UK, however, saw slight confidence declines with the West Midlands at 27%, Yorkshire and the Humber (26%), while there was a larger 10-point fall in the East Midlands to 28%.

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In sector terms, there was notable strength in sectors benefiting from the further easing of Covid-19 restrictions. Confidence in construction and manufacturing both stood at 40% (up 7 points) and services at 36%, the highest level since January 2018, reflecting rises in trading prospects for the year ahead.

Retail confidence posted a smaller 2-point rise to 34%, remaining below the recent peak in May.

“Since the start of the year business confidence has been increasing, and August has been a particularly strong month. Many of the regions have seen significant upticks in confidence and it’s encouraging that Northern Ireland has moved back into positive territory,” said Gareth Oakley, managing director for business banking at Lloyds Bank.

“It is clear there is still some level of uncertainty on inflation and the impact of price pressures, but with further boosts to confidence in the services, manufacturing and construction sectors we can be hopeful that demand across all sectors will drive consumption throughout the rest of the year.

“The last few months of the year will be pivotal to the future of UK economic growth and we remain by the side of businesses as the country continues to reopen.”

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