UK business confidence plummets amid rising inflation

·Finance Reporter, Yahoo Finance UK
·2 min read
business confidence A worker cuts newly manufactured bars of steel at the United Cast Bar Group's foundry in Chesterfield, Britain, April 12, 2022. Picture taken April 12, 2022. REUTERS/Phil Noble     TPX IMAGES OF THE DAY
Confidence among UK businesses is low. Photo: Phil Noble/Reuters

Confidence among UK businesses has sunk for the third consecutive month in August and is now at its lowest since March 2021.

Lloyds Bank’s monthly business barometer dropped to 16% in August from 25% in July, with many companies concerned by soaring prices for energy and raw materials.

Over 70% of businesses said that the impact of inflation was one of their biggest concerns, particularly in relation to raw materials and energy costs, while almost 40% were concerned about slower UK and global growth.

Read more: Inflation and rising energy bills hit UK service sector

Still, 38% of businesses anticipate an increase in their headcount in the year ahead, although hiring intentions moderated for the third month in a row.

However, the number of businesses anticipating at least a 3% wage increase for their employees has decreased.

The survey also showed that the proportion of firms that expect to increase their prices in the coming year edged down two points to 56% in August, with 5% still expecting to lower their prices.

Fewer firms expect to raise prices in the next 12 months (51%), but this remains higher than the average figure in 2021 (37%).

Hann-Ju Ho, senior economist at Lloyds Bank Commercial Banking, said: “Business confidence declined for a third consecutive month as firms continue to face economic challenges in the period ahead and as inflation concerns intensify.

“Despite edging lower this month, the outlook for both wage and price pressures remains elevated. However, there are some brighter points as the demand for staff remains positive, and firms reported lower concerns about staffing issues and the pandemic.”

Looking across the UK, confidence increased in three of the country’s 12 regions and nations this month, with rises in the North West (44% up 26 points), Yorkshire and the Humber (23%, up nine points) and the South West (23%, up 12 points).

Read more: UK economy grinds to a near halt on the back of dwindling customer demand

Paul Gordon, managing director for SME and Mid Corporates, Lloyds Bank Business & Commercial Banking, said: “We know that rising costs are already dealing a heavy blow to businesses, but remaining agile to the changing economic environment will be vital for businesses in the months ahead.

“Firms must keep a tight watch on costs and structure their finances wisely, so they are in the best position possible."

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