Drop in business confidence for the capital

Business confidence in London fell 10 points during the beginning of June to 33%, according to the latest Business Barometer from Lloyds Bank Commercial Banking.

Companies in London reported lower confidence in their own business prospects month-on-month, down 18 points at 31%. When taken alongside their optimism in the economy, up one point to 37%, this gives a headline confidence reading of 33%.

London businesses identified their top target areas for growth in the next six months as evolving their offer (36%), diversifying into new markets (35%) and investing in their teams (33%).

The Business Barometer, which surveys 1,200 businesses monthly, provides early signals about UK economic trends both regionally and nationwide.

A net balance of 34% of businesses in the region expect to increase staff levels over the next year, unchanged on last month.

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Overall, UK business confidence increased by nine points to 37% in June, with all regions reporting a positive confidence reading. Eight out of 10 regions reported a higher confidence reading than in May.

The East Midlands reported the highest levels of business confidence at 52% (up 35 points on last month), the highest level of any UK region or nation this year. Scotland reported the second highest confidence reading at 50% (up 28 points month-on-month), followed by the North East at 47% (up 12 points month-on-month) and Yorkshire at 45% (up 26 points month-on-month). London and the South West were the only regions to report a decline in confidence.

Business confidence for firms in the service sector rose to 37% (up 11 points), the highest seen since February 2022. With the recent spell of good weather and a reduction in food and energy prices, businesses in leisure and hospitality may be able reap the rewards in the months to come.

Manufacturing firms’ confidence also increased to its highest level since early 2022, rising to 50% (up 10 points) to outperform other sectors.

Becci Wicks, regional director for London at Lloyds Bank Commercial Banking, said: “While a dip in confidence is never great to see, it’s still a brilliant picture of optimism among London’s businesses.

“Headwinds, particularly around inflationary pressures and the tight labour market, are causing concern, but we’re seeing other challenges such as rising fuel and energy costs start to ease.

“It’s great to see that many of London’s businesses expect to increase staff levels in the coming months. Firms should keep a close eye on cashflow and working capital and unlock financial support when they need it to grow their headcount whilst remaining profitable.”

Hann-Ju Ho, Senior Economist Lloyds Bank Commercial Banking, said: “It’s encouraging to see business confidence rebounding following last month’s five-point dip to 28%. Trading prospects and optimism have seen a resurgence this month with overall confidence up in all but two of the twelve regions of the UK, which shows positive prospects across the wider economy.

“However, interest rate rises and cost pressures are still felt by many and we await to see the impact of the latest 50 basis point rise in the base rate. Meanwhile, expectations for average pay growth, although down slightly this month, appear to have picked up compared with the start of the year and remain elevated relative to pre-pandemic levels.”