UK business confidence falls to 17-month low

UK business confidence fell sharply in September to its lowest level in 17 months as concerns over inflation, higher costs and global uncertainty weighed on sentiment, according to the latest Lloyds Business Barometer.

Overall confidence declined 12 points from 53% in August to 41%, its lowest level since April 2025. Despite the fall, confidence remained 10 points above the survey’s long-term average of 30%, although it was six points below the 12-month average.

Lloyds said the decline was comparable with the fall recorded earlier this year following the start of the Middle East conflict, with renewed tensions and higher energy prices contributing to weaker economic sentiment.

Economic optimism fell 18 points to 31%, compared with a 12-month average of 37%. While 52% of businesses remained optimistic about the wider economy, this was down 12 points from August, while the proportion expressing pessimism increased six points to 21%.

Businesses cited rising costs, inflation and global uncertainty among the main factors behind the deterioration.

Hann-Ju Ho, Senior Economist at Lloyds Commercial, said:

“September’s fall in business confidence was driven primarily by a significant decline in economic optimism, with businesses responding to a combination of higher global energy prices and increased global uncertainty.

“Trading outlook also fell, suggesting that firms are becoming more cautious about the outlook for demand and activity over the coming year.”

Majority of businesses still expect growth

Companies also became less confident about their own prospects, with the trading outlook declining eight points to 50%, compared with a 12-month average of 56%.

Despite this, 57% of firms expect their output to increase over the coming year, while only 7% anticipate a decline in activity.

Among businesses expecting activity to weaken, economic uncertainty, higher costs and softer customer demand were cited as the main factors.

Confidence varied significantly according to company size. Businesses with turnover between £25 million and £100 million recorded a three-point increase in confidence to 75%, driven by stronger demand and industry-specific improvements.

By contrast, confidence among businesses turning over less than £5 million fell 14 points to 39%. Firms with turnover between £5 million and £25 million recorded a five-point decline to 54%.

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

“While confidence among larger firms remains strong, smaller businesses have seen a fall in sentiment as they continue to navigate higher costs, inflationary pressures and global uncertainty.

“Overall confidence remains above its long-term average, and most businesses still expect activity to grow over the coming year, underlining the resilience of UK firms. Ensuring smaller firms can share in future growth will be crucial in the months ahead.”

Manufacturing and services record sharp falls

Confidence across the manufacturing sector fell 19 points to 36%, below its 12-month average of 44%, while services recorded a 21-point decline to 35%, compared with a 12-month average of 46%.

Construction confidence decreased eight points to 47%, while retail was the only major sector to record an increase, rising three points to 51%.

Businesses also remained cautious about passing higher costs on to customers. The proportion expecting to increase prices over the next 12 months rose by one point to 52%, following three consecutive months of declines.

Confidence fell in 10 of the UK’s 12 regions and nations during September, the broadest geographical decline since April.

The West Midlands recorded the highest confidence level at 69%, up 22 points from August, followed by the North East at 50%. The North West stood at 49%, London at 46% and Yorkshire and the Humber at 45%.

The largest monthly declines were recorded in Wales, where confidence fell 38 points to 16%, the East Midlands, down 31 points to 20%, and the South West, down 30 points to 25%.

Ho added: “While price expectations edged higher, they remain below levels seen a year ago, indicating that businesses are continuing to balance rising costs against the need to remain competitive.”