UK business confidence rises despite dip in economic optimism

UK business confidence rose in August, climbing two points to 54%, according to the latest Lloyds Business Barometer. The gain marks the fourth consecutive monthly increase, underpinned by improving trading prospects and strong hiring intentions.

However, the report also showed a slight cooling in wider economic optimism, which fell three points to 44%, its first decline since April. Despite the dip, optimism remains well above the long-term average of 19%.

Trading prospects hit highest level since 2014

The headline rise in confidence was driven by a five-point jump in trading prospects, which hit 63%, the strongest reading in over a decade. Businesses remain largely focused on their own growth potential, even amid persistent cost pressures and uncertainty in the broader economy.

Hiring intentions and wage growth strengthen

August also marked the fourth straight month of rising hiring intentions. 62% of firms expect to increase headcount over the next 12 months, while just 12% anticipate cutting staff, pushing the net hiring balance up to 50%.

Wage growth expectations are also climbing. 38% of businesses now forecast average pay rises of 3% or more, up four points from last month. Notably, 23% expect to raise wages by 4%, while 12% predict increases of 5% or more – both figures rising by five points.

Price pressures remain elevated

Inflationary pressures persist, with 65% of firms expecting to raise prices over the next year, up from 61% in July. Just 2% plan to lower prices, compared with 4% previously.

Hann-Ju Ho, Senior Economist at Lloyds Commercial Banking, said: “This continued upward trend in business confidence suggests UK firms remain optimistic about their own trading prospects while there is a modest cooling of confidence in the wider UK economy.

“Firms are focusing on what they can control, with many looking to pursue growth opportunities, including entering new markets and adopting new technologies. Wage expectations have seen a notable shift this month, but it remains to be seen whether this signals the start of a sustained trend or a temporary uplift.”

Manufacturers lead the way, but sectoral gaps widen

Manufacturers saw the sharpest improvement, with confidence surging 14 points to 62%, the highest level since 2015. Retailers also reported stronger sentiment, climbing 13 points to 57%, a five-month high.

In contrast, construction firms reported a five-point drop in confidence to 40%, a four-month low. The services sector also saw sentiment ease, down eight points to 53%.

Regional picture mixed

Business confidence rose in five of the UK’s twelve regions. London, the East of England, and the West Midlands recorded strong gains, while Wales saw confidence fall sharply by 13 points, though it still ranks among the top three most confident regions overall.

Paul Kempster, Managing Director for Commercial Banking Coverage at Lloyds Business & Commercial, added: “August’s figures show a build on business confidence.

“Opportunities continue to lie ahead for businesses, whether that be upskilling their workforce or exploring new markets. While confidence isn’t rising evenly across all sectors and regions, it’s encouraging to see positive sentiment holding well above the long-term average.”