Overall business confidence hits 14-month high as economic optimism surges

The latest Lloyds Bank Business Barometer shows:

• Overall business confidence increased for a fifth consecutive month, rising 13 points to 23%.
• Economic optimism surged to 23% from 2%, an 18-month high.
• Firms’ concerns about the expected impact of the UK leaving the EU was the least negative since November 2018.
• Confidence increased in ten out of twelve regions, with London being the most confident and Scotland the least confident region.
• Overall business confidence rebounded in construction and services but saw a slight decrease in the manufacturing sector.

Overall business confidence surged in January, according to the first Lloyds Bank Commercial Banking Business Barometer in 2020. The survey, the first to be taken after the December General Election, shows the 13 point increase took business confidence to 23% in January, a 14-month high and rising back towards the long-term average of 25%. This was largely driven by firms reporting an improvement in economic optimism, which leapt to 23% from 2%, the highest for a year and a half.

Overall business confidence is calculated by averaging the views of 1,200 companies on their business prospects and optimism about the UK economy.

January saw a rise in trading prospects, increasing four points to a seven-month high of 22%. The buoyed outlook continued to be reflected in firms’ assessment of their own hiring intentions, which rose a further three points to 15%, the highest since December 2018. The number proportion  of firms expecting higher staffing levels remained unchanged, with a third of businesses (34%) expecting to increase employment. Those anticipating a reduction decreased by three points to 19%.

Concerns about the UK leaving the EU eased significantly this month as the Business Barometer showed an eight  point increase to -7%, the least negative since November 2018 (see chart 2). Businesses’ views on the impact of leaving the EU remain divided, with 27% of businesses believing the UK’s exit will have a positive impact (up from 24%), while 34% (down from 39%) continue to expect a negative impact.

Hann-Ju Ho, Senior Economist, Lloyds Bank Commercial Banking, said: “After a turbulent 2019, it is encouraging to see a solid rise in overall business confidence to start the new decade. These results, if sustained, could signal a stronger economic growth at the start of 2020, although risks to the central outlook remain.

Confidence across the regions and sectors 

Ten out of twelve regions recorded a rise in overall confidence this month. London was the most confident region (38%), rising 22 points, followed by the South West (34%).

The East Midlands (31%), the North West (26%) and Northern Ireland (25%) were also above the UK average of 23%. Scotland was the least confident region with a decrease of 15 points to -4%, moving it into negative sentiment. (See chart 3).

In January, overall business confidence saw a marked improvement in the construction and services sector with construction increasing 15 points to 27%, while services increased 17 points to 21%. Confidence in the retail sector increased by two point to 24%, while the manufacturing sector saw a decrease of six points to 21% (see chart 4). 

Paul Gordon, Managing Director for SME and Mid Corporates, Lloyds Bank Commercial Banking, said:  “It is hugely encouraging to see a significant increase in business confidence for firms up and down the UK. London had a particularly strong start to the year, which could be businesses’ positive reaction to greater political and economic certainty. It is also encouraging to see both the South West and East of England posting significant strides.

However, Scotland saw a sharp decline, moving the region into negative sentiment. The overall buoyed results are also reflected by improvements in three of the four sectors and we hope that more businesses plan for growth as we continue into 2020.”