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UK business confidence falls for first time in three months

Christian Fernsby |
Overall business confidence in May fell for the first time in three months, dipping four points to 10% according to the latest Lloyds Bank Commercial Banking Business Barometer.

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This decline follows a four point rise in April to 14% and brings the figures in line with confidence levels in March 2019.

The net balance of firms reporting stronger trading prospects fell seven points to 17% this month, while economic confidence was broadly steady, edging down one point 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.

Business confidence levels remain below the long-term average[2] of 24%, averaging 11% so far in 2019, compared with 28% in 2018.

Firms’ assessment of the expected impact the UK leaving the EU will have on their trading prospects reached a new low at -21%.

While 19% believe leaving the EU will have a positive impact, 40% say it will have a negative impact.

In May, an unchanged one-third (33%) of firms said they expect to increase their headcount in the year ahead, while 21% (up from 19% last month) predicted it would shrink.

The proportion of firms reporting that they expect average pay growth of 2% or more in the next twelve months fell to 25%, the lowest since the question was first asked in January 2018.

Overall business confidence fell in eight out of the 12 regions in May.

The biggest decline was in the North East (down 17 points to ‑5%), followed by London (down 9 points to 10%), the South West and Scotland (both down 9 points to 0%).

Businesses in the East of England were the least confident, with an overall confidence of -6%.

Yorkshire and the Humber was the most confident region in May, rising five points to 23%.

The West Midlands was the second most confident UK region (21%), followed by the East Midlands and Wales (both 19%).

Overall confidence rose among manufacturing businesses for the second consecutive month, up 5 points to a four-month high of 21%.

The sector was the most confident in both trading prospects and economic optimism.

The services sector continued to report the weakest overall confidence (down 5 points to 7%), reflecting firms’ more negative economic optimism and the expected impact of the UK leaving the EU.

Confidence also fell in construction (down 3 points to 12%) and retail (down 5 points to 11%).

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