UK business confidence rises as firms hope for interest rate cuts

UK business confidence held steady in March as firms raised their hopes for interest rate cuts from the Bank of England (BoE) this year.

According to Lloyds (LLOY.L) business barometer, overall confidence came in unchanged at 42% for the third month in a row, signalling continued positivity in the British economy.

Economic optimism reached the highest level for over two years at 39% while wage growth expectations pulled back for second month, but still sat above long-term average.

Official monthly gross domestic product (GDP) data appears to corroborate these findings, Lloyds said, as the data for January and February suggests the economy began to grow again early this year.

It came as concerns about supply chain disruption reduced compared to previous months. It was no longer the factor most concerning businesses, with interest rates, inflation, and energy prices the most prominent issues.

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When asked about their own trading prospects, firms remained be positive, although slightly less than in previous months.

More than half (55%) of those surveyed said they expected a stronger output over the next 12 months, while an unchanged 10% anticipated weaker activity. As a result, the net balance for trading prospects fell four points to 45%.

Firms most upbeat were found in the East of England, Wales and the North East, the survey revealed.

“We are beginning to see a consistent trend emerge from our barometer results in recent months. Businesses are feeling increasingly confident about the economy, coinciding with falling inflation and hopes that interest rates will start to fall this year," Hann-Ju Ho, senior economist at Lloyds Bank Commercial Banking, said.

“There continues to be a mixed picture among the regions, with the biggest rises seen in Wales and the South West. The strongest confidence was reported in the East of England, with confidence rising for the third consecutive month. Confidence in the North East eased slightly but remained strong in April.

“The second quarter of 2024 has started brightly for businesses, and we are seeing firms expressing greater confidence in an enduring economic recovery.”

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Businesses in the manufacturing sector reported increased confidence this month, recording an increased score of 45% (up four points) which is the highest level for three months. Similarly, confidence among firms in the services sector (42%) and construction (41%) also improved, largely driven by greater economic optimism.

In retail, confidence pulled back slightly from last month’s strong showing to 40%, illustrating that confidence in this sector remains fragile. Retail is also more liable to be impacted by external factors sectors other sectors do not face into, such as the poor weather.

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