26th February 2021

Lloyds says business confidence inches into positive territory, driven by hopes for economic revival

The latest Lloyds Bank Business Barometer shows:
-Overall UK business confidence increased by nine percentage points to 2%, the first positive net balance since the start of the pandemic and the highest level recorded since March 2020.
-Although confidence remains below pre-COVID levels, the improvement in sentiment was led by a rise in firms’ own trading prospects for the year ahead and their optimism about the economy.
-Confidence increased across all UK regions and nations, with North West, East Midlands and London businesses the most positive.
-In the four broad industry sectors, confidence is in positive territory for the first time since March 2020, with manufacturing and construction up fourteen and eight percentage points respectively.

Survey responses were captured between 1st February and 15th February 2021, which preceded the Government announcement (22 February) on its roadmap out of lockdown and during which time the UK remained under national lockdown restrictions. Although confidence remains below pre-COVID-levels, the improvement in sentiment reflects the anticipation of a gradual reopening of the economy and continued successful vaccine rollout as well as improvements in firms’ trading prospects and their optimism about the wider economy.

A close reading indicates that the net balance for trading prospects for the year ahead rose by seven points to 2%, with 29%(up five points) of businesses planning for a pickup in activity and 27%(down two points) anticipating less business. Optimism about the economy increased month-on-month by eleven points to 2%. Overall business confidence is calculated by averaging the views of 1,200 companies on their business prospects and optimism about the UK economy.

While firms’ hiring intentions remained in negative territory this month, it was the least negative since last March. The net balance for employment in the coming year increased eight points to ?4%, with 24%(up three points) expecting to increase headcount and 28%(down five points) anticipating net reductions.

There were some indications that wage freezes may be thawing, with just over a quarter(26%) of firms expecting no pay increase in the coming year, down two points since January. In parallel, there appears to be little indication of significant wage rises, with the proportion of firms expecting pay increases of 2% or more at 18%, close to the average since the start of the pandemic.

Firms’ intentions to increase prices for their goods and services in the next year are the highest for nearly a year. The net balance increased by three points to 28%, with 36% (up one point), expecting to raise their prices and 8%(down two points) anticipating price reductions.

Hann-Ju Ho, Senior Economist, Lloyds Bank Commercial Banking, comments “The uplift in business confidence and its entry into positive territory after nearly a year suggests that firms are cautiously pinning their hopes on economic revival in the future and the continued success of the vaccine rollout. In the coming weeks, announcements in the Budget and prospects of an easing of lockdown restrictions will hopefully help to bolster the recovery in business confidence as the economy starts to reopen.”

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