Business confidence has fallen to a 15-month low as soaring inflation and the associated cost-of-living squeeze pile the pressure on bosses.
Corporate sentiment dropped this month to its lowest point since March 2021, when the UK economy was emerging from a second wave of Covid-19, according to a long-running monthly survey by Lloyds Banking Group.
The bank said that while employers remain “broadly positive” they face “several challenges ahead, including concerns around higher costs and slowing demand”.
“If these trends continue, businesses may have less scope to pass on higher costs to support their margins,” said Hann-Ju Ho, senior economist at Lloyds.
Despite the decline, the level of business confidence remained close to the long-term average for the survey, which began in 2002.
Business confidence appears to have proved more resilient than economic sentiment among consumers.
Confidence among households sank to a record low this month as they struggled with the cost-of-living crisis and the prospect of months of strikes.
Last week, GfK, a market research firm, said its consumer morale index, launched 48 years ago, fell to -41 in June from -40 in May, below levels that have previously preceded recessions.
The consumer price index, a key measure of inflation, is at a 40-year high. The Federation of Small Businesses, Britain’s largest employers’ group, has warned that companies have been doing “all they can to absorb higher input, labour and energy costs, but can absorb only so much”.
Lloyds said the proportion of companies citing optimism about their trading prospects fell from 56 per cent in May to 49 per cent this month, while the share of those who were feeling less optimistic rose from 23 per cent to 27 per cent.
Confidence fell in June for the third time in four months, Lloyds said, although the 56 per cent of businesses planning to increase their prices in the coming year was marginally down compared with May.
Service sector confidence declined to its lowest in a year, reflecting weaknesses in hospitality, Lloyds said, although this was offset by stronger confidence in business services.
Hiring intentions dipped slightly but expectations of wage increases remained high. Separate research from CWJobs, a technology jobs platform, found that workers remained “confident in their ability to call the shots and negotiate pay rises and promotions, despite wider market uncertainty”.
The biggest regional falls in business confidence were in London and the West Midlands, Lloyds’ survey found.
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The Office for National Statistics said this month that input price inflation was the main concern reported by businesses when looking ahead to July.
Supply chain problems remain widespread. The statistics body has found that in May, one in five companies reported that it was either unable to get the materials, goods or services it needed from within the UK, or had to change suppliers or find alternative solutions to do so.
Lloyds polled 1,200 companies with annual sales of more than £250,000 and its research is intended to provide early signs of economic trends.
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Corporate confidence hits 15-month low
