UK business confidence slips as firms cite costs and uncertainty

UK business confidence fell three points to 44 in June as firms kept citing inflation, higher costs and broader economic uncertainty, leaving the reading below its 12-month average of 47. Lloyds Banking Group’s Business Barometer was based on online polling by Ipsos of 1,200 UK businesses with annual sales of at least £250,000 between June 1 and June 15.

The bank’s two main components both weakened. Economic optimism dropped four points to 31, well below its 12-month average of 38, while the trading outlook slipped two points to 56, just under its yearly average of 57. Even so, 64 percent of firms expected stronger output over the next year and only 8 percent expected weaker activity.

The split between domestic and internationally active firms remained wide. Businesses focused on the UK were the most downbeat, with economic optimism sliding 21 points to 3, an 18-month low, and trading outlook falling 11 points to 37. Companies with overseas exposure were far more upbeat, with economic optimism rising to 47 and trading outlook climbing to 68. Stronger customer demand, improved financial conditions, supply chain stability and investment plans were supporting that better outlook, while the main negative drivers in June remained rising inflation, cost pressures and global uncertainty.

Manufacturers were the weakest part of the survey. Confidence in the sector fell 10 points to 33, well below its 12-month average of 46. Amanda Murphy, chief executive of Lloyds Business and Commercial Banking: cost pressures and global uncertainty were weighing on confidence, but internationally active firms were seeing signs that supply-chain disruption was easing and customer demand was strengthening.

The Bank of England kept Bank Rate at 3.75% on June 17, citing continued volatility in global energy prices and inflation risks. Office for National Statistics data showed UK GDP fell 0.1% in April, and S&P Global’s flash June composite PMI came in at 49.4, a 14-month low that signalled contraction in the private sector.