Wage pressures and hiring intentions at UK businesses continue to rise, according to the latest monthly Lloyds Bank Business Barometer.
The July survey of UK businesses shows overall confidence has fallen back from recent highs, although employment trends continue to point higher.
The overall confidence measure fell slightly by 3 points to 30% in July, but this is nevertheless an elevated level.
Firms’ own trading prospects edged down to 28% from 30%, reflecting 41% (down from 43%) expecting stronger activity in the year ahead and 13% (unchanged) anticipating a weaker outlook.
Optimism regarding the economy fell to 32% from 36%, with 51% (unchanged) more positive and 19% (up from 15%) less bullish.
The fall is consistent with other surveys covering the mid-year period that show the pace of the UK's economic rebound has slowed, with economists saying consumers and businesses have become more cautious owing to a third wave of infections caused by the Delta variant.
But employment prospects for the year ahead improved for a sixth consecutive month, reaching the highest level since November 2018.
"A sixth consecutive monthly increase in employment expectations alongside an increase in pay growth expectations continues to highlight the resilience of UK businesses despite a slight blip in overall business confidence. With COVID-19 restrictions having now been significantly eased in parts of the UK we can have confidence in firms’ outlook for the UK economy," says Hann-Ju Ho, Senior Economist at Lloyds Bank Commercial Banking.
The net balance of firms expecting to add to their workforce rose by 1 point to 18%, with 34% (unchanged) anticipating higher staffing levels and 16% (down from 17%) predicting a lower headcount.
In terms of average pay growth for the coming twelve months, 27% (up from 24%) expected a rise of at least 2%, which is the highest number since the March 2020 survey, carried out just before the first lockdown.
Strong wage growth could imply inflation reaches levels that are higher than the Bank of England is currently forecasting, which could place pressure on the Bank to consider raising interest rates in 2022.
The Lloyds survey shows prices charged for goods and services in the coming year dipped to 34% from 36%, the first fall since January 2021, but it is still equivalent to levels seen in early 2020.
Thirty-nine percent (down from 40%) expected to charge higher prices and 5% (up from 4%) anticipated lower prices.