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Business confidence in the UK has surged to its highest level since before the Brexit referendum, according to Lloyds’ Business Barometer. The survey revealed that business confidence jumped by eight points in May to reach 50%, marking the highest level since November 2015. This rise in confidence reflects a growing optimism among firms about their trading prospects, which increased by nine points to 54%, and a more hopeful view of the wider economy.
The survey was conducted in early May, coinciding with unexpectedly strong GDP figures for the first quarter of 2024. The UK economy grew by 0.6% in Q1, surpassing expectations and providing a solid foundation for renewed business optimism. Additionally, inflation has decreased more rapidly than anticipated, with the headline rate dropping to 2.3%, the lowest in nearly three years. This rapid decline in inflation has been coupled with strong wage growth, which continues to outpace price increases. The combination of falling inflation and rising wages is expected to boost household disposable incomes, potentially driving a consumer spending-led recovery from the previous year’s mild recession.
Confidence in the overall economy rose by seven points to 46%, the highest level since before the Russian invasion of Ukraine. This broader economic optimism is reinforcing positive sentiment among businesses. In London, business confidence increased by 12 points, reflecting strong regional growth. Firms in the capital highlighted investment in sustainability as a key growth priority for the next six months.
Despite the positive outlook, there are inflation concerns. The survey indicated that 63% of firms plan to raise their prices, compared to just 2% who expect prices to fall. This trend suggests businesses are looking to rebuild profit margins in response to decreasing energy costs and overall inflation.
Senior economist at Lloyds, Hann-Ju Ho, noted the significant improvement in business confidence. With inflation under control, continued wage growth, and the possibility of the Bank of England cutting interest rates in the summer, the economic outlook appears favourable. These factors are expected to support a robust recovery driven by consumer spending.
Overall, the Lloyds Business Barometer highlights a notable surge in business confidence, underpinned by strong economic performance, falling inflation, and optimistic prospects for both firms and the broader economy.
