Business confidence hits two-year highThe latest Business in Britain report from Lloyds Bank shows a rise in confidence among UK businesses. Confidence has now risen above the long term average and is at its highest since June 2016. It shows that companies are beginning to adapt to the uncertainty of Brexit.

The 1,500 respondents are primarily small to medium businesses. Over 99% of all UK businesses are officially SMEs which makes this report interesting. The report asks about expected demand, sales and profit for the next six months. It also reports on sales for the previous six months.

Sharon Geoghegan, Managing Director, SME Banking, Lloyds Banking Group
Sharon Geoghegan, Managing Director, SME Banking, Lloyds Banking Group

Sharon Geoghegan, Managing Director, SME Banking, Lloyds Banking Group said: “Despite concerns on the wider economy, businesses are still relatively upbeat as our latest report shows business confidence hitting a two-year high since the Brexit vote. England’s better than expected performance in the World Cup will also boost the nation’s feel-good factor.

“As we look ahead, the external environment remains mixed as Brexit uncertainty and weaker UK demand are businesses’ biggest concerns for the next six months. Despite those risks and rising global trade tensions, business investment and hiring intentions remain at similar levels to the start of the year.”

What are the challenges ahead for business?

A positive outlook should be good news for business owners, shareholders and generally staff. It should provide a basis for increased recruitment and investment in these businesses.

That, however, is not the case here. A lack of skilled workers is seen as a drag on business. At the same time, fewer companies plan to invest in the business and recruit than in the previous survey.

Key points from the survey show:

  • Businesses reporting increased confidence up from 23% to 25%. Across the UK the increase varied. The biggest increase was in the South West with London and South East England showing the greatest confidence. The North East, North West and East Midlands saw significant confidence falls: these are all areas dependent upon manufacturing.
  • Sales for last six months were up at 27% of respondents, an increase of 5%. US, Europe and the Middle East led the increases in export sales. Increased exports may offset the continued weakness in UK demand but that is likely to be a temporary solution. Furthermore, as a factor, exports affect a smaller number of businesses.
  • There are skilled labour recruiting problems at 49% of companies. This most pronounced as a problem in Northern Ireland. London and the West Midlands also reported problems with skilled labour while the North East and South West reported a surplus of skilled workers. (The survey didn’t ask about recruiting from other areas and workforce mobility.)
  • The greatest increase in confidence exists among construction companies (+10%).
  • Three sectors showed a fall in confidence: manufacturing, hospitality & leisure and retail & wholesale.
  • Brexit remains a cause for concern and uncertainty. Almost half of respondents were unsure of the impact it will have on their business. If the UK goes with a hard Brexit 36% say it will have a negative impact. Only 20% felt that Brexit would be positive for them

What does this mean

This survey was taken before the government announced the current (post-Chequers) UK Brexit plan. How much this plan will affect confidence will only become clear in January when Lloyds Bank releases the next survey.

The increased outlook for sales is good news, as it the increase in exports. The questions are:

  • whether these are sustainable
  • can they offset the decline reported in UK orders.

The current low value of Sterling is helping exporters. As anticipated, conversely, a weak pound hurts importers (and the UK imports far more than it exports).

The reduction in the already low rates of recruitment and investment continues. This suggest businesses are unwilling to commit when faced with an uncertain future.

Arguably, skilled workers were always going to be in short supply. What this survey doesn’t do is look at workforce mobility or even ask about training and apprenticeships. It also avoids asking about the role of technology in reducing costs. This is a surprise. Might it have given a different view on what is happening with investment?


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