Skip to content
ADVERTISEMENT
Industry & Market News

Business confidence at three-year high

BUSINESS confidence has climbed to its highest level since 2007, reports Lloyds TSB Commercial in its latest Business in Britain report.

4 min read
Share
ADVERTISEMENT

BUSINESS confidence has climbed to its highest level since 2007, reports Lloyds TSB Commercial in its latest Business in Britain report.SMALL businesses are being boosted by export markets, and are predicting rising sales and improved profitability, despite weak ongoing domestic demand.

John Maltby, managing director, Lloyds TSB Commercial said: “Business confidence is on the turn. After such dramatic lows, this revival is a real sign that businesses are genuinely hopeful for the future, and it is clear that many firms now see better sales and profitability on the horizon.

“But it remains a confidence tinged with caution. Concerns about home-grown demand are unsurprisingly weighing on the minds of business owners whose success depends on domestic markets. As long as businesses harbour doubts about the economic climate, they will hold back on investment spend and, while there’s enough momentum behind the recovery to prevent it faltering, it is likely to be a long haul.”

Business in Britain Confidence Index

The quarterly report, which canvassed more than 2,300 UK firms, shows that business confidence is now at its highest level since 2007, continuing the climb back from the historic lows of 2008. The Business in Britain Confidence Index, which measures firms’ outlook for sales, order book and profitability, recorded a net positive balance of 18% in June – rising from 16% in the last survey.

The Export Effect

This renewed momentum is being driven by the promise of growing exports. A balance of 25% of businesses expects order book levels to rise, in the second half of this year – with 42% expecting a rise in foreign sales, as a result of the rebound in world demand and a sustained fall in the pound.

Concerns over domestic demand

ADVERTISEMENT

Despite this export led boost the balance of 18% remains below the long term survey average of 22%, weighed down by businesses’ fears about prospects for domestic growth.

Uncertainty about falling domestic demand is by far the biggest worry amongst businesses across the UK, with more than half (56%) saying that fragile domestic markets are their greatest concern.

The fact that confidence levels across businesses serving the public sector are significantly lower than the average of all businesses is likely to be a reflection of worries about the potential impact of government spending cuts on business opportunities across the UK.

ADVERTISEMENT

The smallest businesses (with a turnover of under L1 million) saw confidence slip, albeit by just one percentage point, to 10%, though that level is significantly above lows plumbed in 2008.

A new North-South divide?

Despite the apparent strengthening of confidence amongst manufacturers, overall fears of a slowdown in domestic demand are hitting the UK’s manufacturing heartlands, perhaps a reflection of the importance of the public sector to the economy of these regions. Confidence levels are weakest in the West Midlands, with Wales, Scotland and Northern England all registering similarly low levels, compared to relatively strong confidence levels in London and the South East (balances of 25%).

Impact on investment

Businesses lack of confidence in prospects for domestic demand is having a knock on effect on their plans for the coming year. While the balance of firms expecting to be able to boost investment has improved dramatically (from -20% to -5%) since June 2008, it remains firmly below the long term average.

Other factors that have caused firms to keep the brakes on investments spending include weak profits and excess capacity – both reflections that demand remains an issue for many firms.

Trevor Williams, chief economist, wholesale markets said: “The UK is on the road to recovery, led by improvements in business confidence. Export sales, in particular, have risen strongly, helped by the rebound in global demand as well as the sustained fall in the pound.

“The question now is how this renewed confidence will shape the recovery. History tells us that emerging from recession is not always a smooth ride, and we should not expect the coming months to be easy. However, if confidence holds up, we should avoid the double dip that many have feared.”

Related

ADVERTISEMENT