Declining optimism in UK economy knocks capital’s confidence

Business confidence in London fell 19 points during February to 18%, according to the latest Business Barometer from Lloyds Bank Commercial Banking.

Companies in the capital reported lower confidence in their own business prospects month-on-month, down four points at 37%. When taken alongside their optimism in the economy, down 34 points to -1%, this gives a headline confidence reading of 18%.

London businesses identified their top target areas for growth in the next six months as investing in their team (40%), investing in sustainability (37%) and diversifying into new markets (35%).

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

A net balance of 17% of businesses in the region expect to increase staff levels over the next year, down four points on last month.

Overall UK business confidence decreased by just one point to 21% in February. Firms remained positive about their own trading prospects, with a net balance of 31% expecting business activity to increase in the coming 12 months.

Firms also reported plans to create new jobs, with 20% of businesses intending to make new hires over the next 12 months – up three points from January.

All UK regions and nations reported a positive confidence reading in February, with six areas reporting a month-on-month increase in confidence. Of those, the West Midlands (up 30 points to 48%) and Yorkshire and Humber (up 22 points to 34%) saw the largest monthly increases.

Becci Wicks, regional director for London at Lloyds Bank Commercial Banking, said: “Despite the dip in confidence, London firms have optimism in their own business prospects, something that will help shape their growth plans for the year ahead.

“It’s encouraging to see that investing in sustainability remains high on the agenda for many firms. The UK’s government’s target of hitting net zero by 2050 is coming into sharper focus with each passing day, and high energy prices will also likely be playing a big factor in firms’ move to boost sustainability.

“Investing in new features, such as solar panels and electric vehicles, is becoming cheaper too, with tools like our Clean Growth Financing Initiative making these enhancements more affordable. We will continue to be by the side of businesses to offer the guidance and practical support they need to become more sustainable.”

Retail confidence bounced back, rising for the first time in three months to 21% (up 14 points), led by improvements in both trading prospects and economic optimism. However, business confidence fell in construction (down eight points to 19%) and services (down five points to 20%) although this remains higher than in the latter part of 2022.

Hann-Ju Ho, senior economist for Lloyds Bank Commercial Banking, said: “Business confidence has lost a little momentum this month, following the strong gains seen recently. Firms are feeling more cautious about the wider economy. However, confidence in their own trading prospects continues to strengthen, helped by tentative signs that wage and other cost pressures may be reducing.

“While inflation appears to be tapering, pressures on consumers will need to ease further to help make it a more stable environment for businesses to operate.”