Confidence stabilises, says survey
Buoyant exporters target Asia and Middle East
More firms are targeting Asia and the Middle East as export markets as they continue to take advantage of the weak pound.
Business confidence has stabilised, while optimism over exports has surged, according to the latest Business in Britain report from Lloyds Bank, the first economic forecast of the year.
The report’s confidence index – an average of respondents’ expected sales, orders and profits over the next six months – rose slightly to 14%, up from 12% in September. It reveals that confidence has risen sharply in manufacturing and hospitality.
The most commonly identified threat cited by companies in the next six months was economic uncertainty (26%), followed by weaker UK demand (17%) as firms wait for further details of Britain leaving the EU.
The Business in Britain report, now in its 25th year, gathers the views of over 1,500 UK companies, predominantly small to medium sized businesses.
Tim Hinton, an SME executive at the bank, said business confidence “has picked up again in the last few months.”
He noted that the banking sector has a much stronger capital position to withstand any shocks than in 2008/09 “which should give businesses more confidence that their growth ambitions can be supported in the year ahead.”
Jump in export intentions to Asia
The net balance of firms anticipating stronger export sales in the next six months rose in all regions and overall increased by six points to 26%from the last survey.
This upturn was led by a big increase in the number of firms anticipating stronger exports to Asia Pacific and the Middle East which increased by 11 and 7 points respectively.
Businesses indicated that the exchange rate is the most favourable for their export sales since the last big depreciation in 2009 during the global financial crisis.
The weaker pound has also contributed to a rise in firms’ pricing intentions.
The net balance of firms expecting to raise their prices in the coming six months increased to 20% from 13%.
This is particularly high among importing firms whose intentions increased from 20% to 28%, the highest level since 2013.
Businesses cautious on hiring and capital spending prospects
The net balances of firms expecting to raise their investment and staffing levels in the next six months remained near zero at 1 and 2% respectively.
The share of firms saying they are experiencing difficulties in recruiting skilled labour fell to 31% from 38%. This is the third consecutive decline and takes the reading to its lowest level since 2013, relating to a fall in firms’ recruitment intentions.
Hann-Ju Ho, the bank’s senior economist, said: “The weaker pound has given a huge boost to exporters as they look beyond their traditional export markets of the US and Europe.
“However this has also led to a jump in the number of firms intending to raise the price of their goods and services in response to higher costs. As a result we would expect inflationary pressures to rise this year.
“The relatively low levels of investment and recruitment intentions also suggest that economic growth is likely to slow in the next six months.”
Manufacturing saw a big rise in business confidence, rising strongly from 14% to 28%, reflecting the boost to competitiveness from the weaker exchange rate.
Confidence in the hospitality and leisure industries has also seen a strong gain from 16% to 28%, possibly due to expectations of a rise in foreign tourists helped by the fall in sterling.
For all other sectors, confidence has fallen, but the declines were generally small. The lowest confidence levels were for transport and communications and business and other services.
Business confidence was the highest in the North East of England (up 1 point to 22%), Scotland ( up 15 points to 21%) and the East of England (up 1 point to 20%, all reflecting improvements compared with the last survey.