NEW REPORT: UK business confidence has sharply declined as global economic concerns intensify, according to the latest Lloyds Business Barometer. The survey, conducted from January 5 to January 20, 2024, reveals a drop to a net balance of +44% in January, down from +47% in December.
The significant downturn reflects a growing pessimism about the broader economic landscape, with net economic optimism plummeting 14 points to +28%—the lowest level in a year. While businesses remain optimistic about their own operations, external pressures are increasingly dampening sentiment.
During the survey period, renewed geopolitical tensions escalated, notably with US President Donald Trump threatening tariffs against the UK and other European nations. This development likely contributed to the heightened economic anxiety reported by firms.
In a contrasting trend, businesses reported a marked improvement in expectations for their own trading prospects, rising seven points to +59%, the strongest outlook in three months. This resilience reflects a broader recovery trend, as indicated by January’s S&P Global Purchasing Managers’ Index, which also signaled a modest uptick in activity.
Moreover, hiring plans showed encouraging signs, marking the first increase in three months, alongside rising expectations for wage growth. Over one in five firms anticipates salary increases of 4% or more, the highest proportion in five months, illustrating ongoing pressures in the labor market despite the overall decline in confidence.
Despite the current dip, Lloyds emphasized that overall business confidence remains stronger than a year ago and significantly above the long-term average of +30%. However, it has retreated from mid-year highs when optimism was bolstered by easing inflation worries. Recent uncertainty surrounding potential tax increases in the upcoming budget announcement by Finance Minister Rachel Reeves has also weighed heavily on sentiment.
As businesses navigate this landscape, the divergence between firm-level optimism and broader economic caution highlights their capacity to manage external risks while strategically pursuing growth opportunities. For policymakers and market analysts, this data underscores a UK economy that remains resilient on a micro level but increasingly vulnerable to global and political headwinds.
WHAT’S NEXT: Observers will be closely watching how these trends evolve, particularly as the government prepares to address economic challenges in the upcoming budget. The ability of businesses to maintain confidence in their operations amid external uncertainties will be critical in shaping the UK’s economic future.
