Business confidence falls to near record low as full impact of economic shutdown hits

The latest Lloyds Bank Business Barometer shows:

• Overall business confidence plunged 38 percentage points to -32% in April, the lowest level since December 2008 at the start of the global financial crisis.
• Economic optimism dropped from 3% to -39%, while trading prospects fell to a record low from 8% to -25%.
• Hiring intentions fell to a nine-year low, with 37% of firms expect to reduce employment over the next 12 months, however,  20% expect to see an increase.
• Overall confidence fell in all twelve regions and across all sectors, with trading prospects weakest in manufacturing, retail and transport services.
• Ten percent of firms report a positive impact on demand from the pandemic, but three quarters say demand has fallen, including 36% reporting a drop by more than half.

Overall business confidence plunged 38 percentage points to -32% in April, sitting near the all-time lowest level recorded of -33% since December 2008 at the start of the global financial crisis, according to the Lloyds Bank Commercial Banking Business Barometer. The steep decline illustrates the impact the measures to contain the pandemic is having on UK businesses. 

The results, which surveyed businesses between 31 March – 16 April 2020, reflect a significant drop in both trading prospects and economic optimism. The survey showed that current trading prospects fell to a record low of -25%, while economic optimism also dropped from 3% to -39% but remains above the levels seen in late 2008, despite sitting at a very low level.

The outlook is reflected in firms’ assessment of their own hiring intentions, which fell into negative territory for the first time since 2011 from 4% to -17%. While a fifth of businesses expect to increase employment, those anticipating a reduction in the next twelve months stood at a record 37%. In addition, businesses that are anticipating a pay freeze increased to 30% from 11% in March. 

Responding specifically to the impact of the coronavirus, 74% of businesses stated a negative impact with 10% of firms say they are benefiting from it. In terms of the ability to supply their product or service, 22% of manufacturers expect their supply chain to return to levels seen prior to the outbreak within three months. The retail sector reported 28%, while within the construction sector 45% expect to see levels return within three months.

The results in April demonstrate the full impact of the measures taken by the Government to shut down large parts of the economy to help contain the pandemic, with sentiment now matching the all-time low of December 2008. There are tentative signs that China’s economy is stabilising as it starts to ease lockdown measures, and that may serve as a template for the rest of the world.

Hann-Ju Ho, Senior Economist, Lloyds Bank Commercial Banking

Confidence across the regions and sectors 

From a regional perspective, all 12 regions reported lower overall confidence in March. Yorkshire and Humber were the least negative region at -19%. Wales was the most negative region at -52% followed by Scotland at -50% (See chart 4).

In April, overall business confidence fell across all four sectors. Confidence in the manufacturing sector saw the sharpest decline, falling 46 percentage points to -35%, with the retail sector falling to -33%. The construction sector fell by 34 percentage points to -20%, while services fell 23 points to -22%.

Paul Gordon, Managing Director for SME and Mid Corporates, Lloyds Bank Commercial Banking, said: “April has shown the unprecedented impact of the shutdown for businesses across the UK with trading prospects and overall confidence free-falling across the regions. During this time it is important that businesses take steps to access the government schemes such as tax deferment, rates reductions, small business grants and the job retention scheme and the various finance options available to them so that they can survive through this crisis and be best placed to open their doors again in the months ahead.”