UK business confidence has risen two points to 54%, according to the latest Lloyds Business Barometer. The August reading marked the fourth consecutive monthly increase. The increase was driven by a five-point rise in businesses’ confidence in their trading prospects to 63%, which is the highest level since 2014.
However, economic optimism edged down for the first time since April, with a fall of three points to 44%, but it remains above the long-term average of 19%.
In August, the net balance of firms expecting to raise prices over the next year was up four points to 65%. 67% (from 65%) of firms said they would raise prices in the coming year, while those anticipating price reductions fell slightly to 2% (from 4%).
Manufacturing firms saw confidence up 14 points this month, to 62%. This level was previously seen in 2015. Retailers also saw an increase in confidence this month, with levels up 13 points to 57%, a five-month high.
However, construction firms’ confidence fell by five points to 40%, a four-month low, while confidence in service sector firms also fell eight points to 53%.
“This continued upward trend in business confidence suggests UK firms remain optimistic about their own trading prospects, while there is a modest cooling of confidence in the wider UK economy,” said Hann-Ju Ho (Senior Economist, Lloyds Commercial Banking).
“Firms are focusing on what they can control, with many looking to pursue growth opportunities, including entering new markets and adopting new technologies. Wage expectations have seen a notable shift this month, but it remains to be seen whether this signals the start of a sustained trend or a temporary uplift, as they have been broadly stable in recent months.”
Wage growth strengthens
Wage growth expectations increased by four points, with 38% forecasting average pay increases of 3% or more. Firms expecting to increase wages by 4% rose five points to 23%, while those forecasting 5% or higher also climbed five points to 12%.
Businesses’ hiring intentions for the next 12 months increased again in August, despite cost pressures. Most (83%) of the firms surveyed said that increases in employment-related costs would have a limited impact on hiring plans, with a third saying it would have a moderate effect. However, 17% said it would have a major or severe impact on their business.
62% of all businesses surveyed expect to hire more staff in the coming year, with 12% anticipating reducing employee numbers, increasing the net balance by one point to 50%.
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