Business confidence slips amid cost and global uncertainty

Business confidence among UK firms edged lower in June as economic optimism weakened amid ongoing cost pressures and global uncertainty, although businesses trading internationally continued to demonstrate resilience, according to the latest Lloyds Business Barometer.

Overall business confidence fell three points to 44% in June, below the 12-month average of 47%. The decline was driven by a fall in economic optimism, which dropped four points to 31%, while firms’ trading outlook slipped two points to 56%.

The survey found that businesses remain broadly optimistic about their own trading prospects, with almost two-thirds (64%) expecting stronger output over the next 12 months. However, confidence in the wider economy has softened as firms continue to cite inflationary pressures, rising costs and geopolitical uncertainty.

A clear divide also emerged between businesses focused solely on the domestic market and those trading internationally.

UK-only businesses reported a sharp deterioration in confidence, with economic optimism plunging 21 points to just 3% – its lowest level for 18 months – while their trading outlook fell 11 points to 37%. Respondents pointed to weaker expected trading activity, higher cost pressures, tighter financial conditions and global uncertainty as the key factors behind the decline.

By contrast, internationally active firms became more optimistic during June. Their economic optimism increased eight points to 47%, while their trading outlook rose five points to 68%, supported by stronger customer demand, easing supply chain disruption, improved financial conditions and increased investment plans.

The survey also highlighted a modest improvement in recruitment intentions. The proportion of businesses planning to increase headcount over the coming year rose by two points to 55%, marking the first increase in three months, while those expecting to reduce staffing fell to 14%. Businesses looking to recruit said they were seeking specialist skills to meet growing demand and expand capacity.

Investment appetite eased slightly, with 34% of businesses saying they were open to new investment opportunities, down three points on the previous month. Training (41%), technology (39%) and artificial intelligence (31%) remained the leading investment priorities.

Manufacturing experienced the sharpest fall in confidence of any sector, declining 10 points to 33%, well below its 12-month average of 46%. The drop was driven by a 16-point fall in economic optimism as manufacturers cited global uncertainty, rising costs and tighter financial conditions. Retail confidence also weakened, falling eight points to 45%, while construction recorded a modest two-point improvement to 46%. Confidence in the services sector remained unchanged at 45% for a second consecutive month.

Regionally, the East Midlands was the UK’s most confident area in June, with business confidence rising two points to 56%, narrowly ahead of London, where confidence increased eight points to 55%. Despite a 15-point monthly decline, the North East remained the third most confident region at 54%. Meanwhile, the East of England experienced the steepest fall, dropping 31 points to 23%, while confidence in the West Midlands fell 24 points to 38%.

Amanda Murphy, CEO for Lloyds Business and Commercial Banking, said the findings reflected a mixed economic picture.

“While cost pressures and global uncertainty continue to weigh on business confidence, international firms are much more confident with many seeing signs of supply chain disruption easing and strengthening customer demand,” she said.

“More broadly, we’ve recently seen an uptick in investment towards energy security and efficiency to support long-term resilience. Where firms are hiring, they’re recruiting highly specialist skills to meet strengthening demand and expand capacity.”

Hann-Ju Ho, senior economist at Lloyds Commercial, said confidence had become increasingly uneven across different sectors of the economy.

“Manufacturing and Retail both saw significant declines in confidence, with Manufacturing in particular dropping sharply and now sitting below its 12-month average, likely reflecting a mix of softer demand and ongoing cost challenges,” he said.

“By contrast, construction saw a modest improvement in confidence and was the only sector to report stronger expectations for its own trading outlook. Services remain broadly steady, although the underlying picture is mixed, with stable demand offset by continued cost pressures.”

He added: “Overall, while some sectors are holding up, the data suggests that uncertainty is still feeding through unevenly and weighing more heavily on parts of the economy than others.”