Business confidence in the UK has fallen as the country faces an uncertain economic outlook and a slowdown in demand.
A new survey by Lloyds Bank shows that confidence among small and medium sized businesses is at a four-year low. The Business in Britain report, published by the bank on Monday, questioned over 1,500 UK companies to understand the overall balance of opinion on a range of performance and confidence measures, weighing up the percentage of firms that are positive in outlook against those that are negative.
The reportís confidence index – an average of respondentsí expected sales, orders and profits over the next six months – declined to 12%, down from 38% in January 2016.
Confidence fell in every sector, but the decrease was biggest in services including retail and wholesale, hospitality and leisure, and business and other services.
According to Lloyds Bank, the most commonly identified threat cited by companies for the next six months was economic uncertainty (27%), followed by weaker UK demand at 18%.
Tim Hinton, managing director for Mid Markets and SME Banking at Lloyds Banking Group, said: ‘Business confidence has taken a hit since our last report in January, but this should be viewed in the context of the recent economic and political shocks.
‘The EU referendum vote has introduced a level of uncertainty for companies as the UK decides on the best model for its future relationship with the EU, and this is likely to continue for the foreseeable future. Whilst sentiment has fallen to a four-year low, it remains well above the lows reached during the global financial crisis of 2008/9.’
A closer look at the survey results shows that the net balance of exporters anticipating an increase in total exports across the globe fell by 15 percentage points to 20%. There was also a 14-point drop to -1% in the net balance of companies expecting an increase in headcount over the next six months, and the net balance planning to raise their capital expenditure also declined, falling from 14% to zero.
Lloyds reported an increase in spare capacity among survey respondents: the percentage of businesses indicating that they are operating at full capacity fell back slightly to 49% from an all-time high of 52% in the last survey, and the proportion citing difficulties in recruiting skilled workers fell to a two-year low of 38%.
Hann-Ju Ho, senior economist at Lloyds Bank Commercial Banking, commented: ‘All of the key metrics in the Business in Britain survey, including the outlook for demand, employment and investment, have weakened since January’s report. This indicates that economic growth is likely to slow in the next six months, following a relatively robust performance in the first half of the year.
‘Even though inflation is expected to pick up as a result of the weaker pound, this may be offset by the survey findings of a fall in capacity pressures within firms and a fall in recruitment difficulties.’