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July 10, 2007

Lloyds’ Barometer Registers Decline in Business Confidence

by Gill Montia

Story link: Lloyds’ Barometer Registers Decline in Business Confidence

Lloyds TSB has published its Corporate Markets Barometer, which indicates that in June businesses in the UK were less confident about their trading prospects than at any time since February 2006.

The number of companies expecting their level of business activity to increase (rather than decrease) over the next 12 months fell 16% to 45%, representing the largest monthly decline since January 2005.

The service sector saw the biggest drop in confidence; in May, 76% expressed optimism about their business activity but this had decreased to 39% in June.

Surprisingly, the barometer shows that confidence in the UK economy as a whole improved, with the majority of firms feeling optimistic, rather than pessimistic.

However, the increase reflects a surge in optimism by industrial and distribution companies, which are continuing to experience growth in the US, Europe and emerging markets.

TSB believes that where confidence has been lost, businesses are reflecting on the combination of higher interest rates, a stronger pound and a growth in input costs, all of which will affect profit margins.

At 5.75%, the base rate is currently at its highest level in six years and economists are predicting a further rises this year, as the Bank of England struggles to reign in consumer spending and bring inflation in line with its 2% target.

 

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