UK business confidence climbs to four-month high, reports Lloyds

UK business confidence strengthened to its highest level in four months during July, as easing geopolitical tensions, lower energy prices and improving economic sentiment helped lift optimism among businesses, according to the latest Lloyds Business Barometer.

Overall business confidence rose five points to 49% in July, moving above the survey’s 12-month average of 47%. The increase was driven by a sharp improvement in businesses’ views of the wider economy, while confidence in firms’ own trading prospects remained resilient.

Economic optimism increased by 11 points to 42%, with 59% of businesses expressing confidence in the wider economy, up four percentage points on June. Respondents cited stronger customer demand, improving financial conditions and more positive economic news as the main reasons behind the improvement.

Meanwhile, businesses’ trading outlook remained steady at 56%, with nearly two-thirds (65%) expecting activity to strengthen over the coming year. Companies anticipating growth pointed to stronger customer demand, increased investment in technology and capacity, and improving supply chain conditions.

The survey suggested confidence is beginning to broaden across the UK economy, particularly among smaller businesses and firms focused on domestic markets.

Businesses with annual turnover below £1 million recorded one of the strongest improvements during the month, with confidence rising 11 points to 48%. Domestic-focused firms also reported a significant increase in economic optimism, up 22 points to 25%, while their trading outlook improved by six points to 43%.

Manufacturing and construction businesses led the sectoral gains. Confidence among manufacturers rose 14 points to 47%, while construction firms reported a 10-point increase to 56%. Service sector confidence also improved, rising four points to 49%, although retail businesses remained broadly stable at 43% as higher cost pressures and economic uncertainty continued to weigh on sentiment.

Amanda Murphy, CEO of Lloyds Business and Commercial Banking, said:

“It’s encouraging to see business confidence reached its highest level in four months, driven by a significant improvement in economic optimism. While challenges remain, these results suggest many businesses are feeling more optimistic about the opportunities ahead.

“Businesses have remained remarkably resilient in recent months, with many focusing on investing in their future, improving productivity and making sure they’re well placed to respond as market conditions change. The stronger confidence we’re seeing among smaller businesses and firms focused on the domestic market is particularly encouraging, suggesting more businesses are starting to see opportunities for growth and investment.”

Regionally, confidence increased in seven of the UK’s 12 regions and nations. The North East recorded the highest level of business confidence at 75%, followed by Yorkshire & Humber (61%) and the West Midlands (57%). The East of England experienced the largest monthly improvement, rising 30 points to 53%, while sentiment weakened in the South West, Scotland, Northern Ireland and London.

Hann-Ju Ho, Senior Economist at Lloyds Commercial, said the results reflected a more stable external environment.

“July’s rise in confidence appears to reflect a more stable global backdrop, with lower energy prices and reduced uncertainty helping to lift firms’ view of the wider economy.

“The improvement was driven primarily by stronger economic optimism, with confidence increasing across a number of sectors, particularly Manufacturing and Construction. This points to firms responding positively to a calmer external environment, while remaining sensitive to geopolitical risks. If global conditions become more uncertain again, sentiment could react, particularly where firms are still managing cost pressures and competitive conditions.”