UK business confidence rises as firms look beyond global uncertainty, Lloyds finds

Business confidence increased modestly in May as firms reported stronger trading expectations despite continuing concerns over inflation, costs and global uncertainty, according to the latest Lloyds Business Barometer.

Overall business confidence rose three points to 47% in May, recovering some of the ground lost in April. The figure remains close to the survey’s 12-month average of 48% and well above the long-term average of 30% recorded since the survey began in 2002.

The improvement was driven by a stronger outlook for firms’ own performance, with trading confidence rising four points to 58%. Around two-thirds (66%) of businesses expect activity to increase over the next 12 months, while only 8% anticipate a decline.

Confidence in the wider UK economy also improved, rising two points to 35%. More than half of respondents (55%) said they were optimistic about economic prospects, while 20% were pessimistic.

However, businesses continued to cite economic uncertainty, rising costs and weaker customer demand as the main factors weighing on activity. Inflationary pressures and geopolitical uncertainty were identified as the biggest drivers of negative sentiment, although concerns about interest rates eased compared with the previous month.

Amanda Murphy, CEO of Lloyds Business and Commercial Banking, said: “Business confidence edged up modestly in May, suggesting firms are beginning to steady after April’s decline.

“This month, confidence levels from businesses in the North East particularly stand out. It’s also reassuring to see that increased confidence from the construction sector has brought them more in line with their retail, services and manufacturing counterparts.”

Despite economic headwinds, firms remained willing to invest. Appetite for investment increased four points to 37%, with businesses most likely to target spending on employee training (43%), technology (38%) and artificial intelligence (36%).

Hann-Ju Ho, Senior Economist at Lloyds Commercial Banking, said businesses appeared to be adapting to an increasingly uncertain environment.

“Business confidence fell back in April as firms assessed a more uncertain global backdrop,” he said. “What’s encouraging to see is that firms’ own internal measures have remained more stable this month, suggesting that they are adept at weathering uncertainty without resorting to significant changes.”

Among sectors, construction recorded the strongest rebound in confidence, rising 15 points to 44%, while retail increased eight points to 53%. Confidence in the services sector was unchanged at 45%, while manufacturing fell four points to 43%.

Construction businesses also reported the strongest improvement in their trading outlook, rising 18 points to 54%, while retail firms’ outlook increased six points to 61%.

Regionally, confidence rose in seven of the UK’s 12 regions and nations. The North East recorded the largest increase, climbing 23 points to 69%, followed by the West Midlands, which rose 13 points to 62%.

Businesses in the North East said stronger customer demand was a key factor behind their improved trading outlook, making the region the most confident in the UK alongside the West Midlands.