Business confidence has fallen to a 15-month low as rising inflation and corresponding living expenses have put pressure on executives.
According to a long-term monthly survey by Lloyds Banking Group, corporate sentiment has fallen to its lowest point since March 2021 this month, when the UK economy is emerging from the second wave of Covid-19.
The bank said employers were “broadly positive” while they “face a number of challenges ahead, including concerns about high costs and slow demand”.
“If these trends continue, businesses may have a lower chance of passing at higher costs to support their margins,” said Han-Xu Ho, a senior economist at Lloyds.
Despite the decline, business confidence levels were close to the long-term average for the survey, which began in 2002.
Business confidence seems to be more resilient among consumers than economic sentiment.
Confidence in the family has fallen to record lows this month as it struggles with the cost of living and the possibility of months of strikes.
Last week, GfK, a market research firm, said its consumer sentiment index, launched 48 years ago, fell to -41 in June – from -40 in May, below the previous level of the previous recession.
The consumer price index, the key measure of inflation, is the highest in 40 years. The Federation of Small Businesses, Britain’s largest employers’ group, has warned that companies are “doing what they can to absorb higher inputs, labor and energy costs, but only so much”.
Lloyds said citing optimism about their business prospects, the proportion of companies fell from 56 percent in May to 49 percent this month, while those who were less optimistic saw their shares rise from 23 percent to 27 percent.
Confidence fell in June for the third time in four months, Lloyds said, although 56 percent of businesses plan to raise their prices next year, slightly lower than in May.
Confidence in the services sector has fallen to its lowest level in a year, reflecting the weakness of hospitality, Lloyds said, although it was offset by strong confidence in business services.
Recruitment intentions have declined somewhat but expectations of wage increases are much higher. A separate study from CWJobs, a technology jobs platform, found that employees remained “confident in their ability to call shots and discuss salary increases and promotions, despite widespread market uncertainty.”
The Lloyds survey found that the biggest regional declines in business confidence were in London and the West Midlands.
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The Office for National Statistics said this month that input inflation was the main concern reported by businesses looking to July.
Supply chain problems remain widespread. The statistics agency found that in May, one in five companies reported that they were either unable to get the necessary goods, products or services from within the UK, or had to change suppliers or find alternative solutions to do so.
Lloyds surveyed 1,200 companies with annual sales of more than £ 250,000 and its research aims to provide early signs of economic trends.