8.5-year High for UK Business Confidence

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Business confidence in the UK reached an eight-and-a-half-year high in May, buoyed by rises in trading prospects and economic optimism.

The headline index gained 8 points to 50%, a level last exceeded in November 2015. The net balance for firms' trading prospects rose 9 points to 54%, a seven-year high, while economic optimism was up 7 points to 46%, the highest since September 2021.

The findings confirm other surveys and official data that show the UK economy is in a definite recovery.

Above: Lloyds Business Barometer Index at highest levels since November 2015.

Staffing level expectations were also the most positive since 2017, with over half of firms planning to increase
their headcount in the next twelve months.

A firming labour market will underpin prices, which can keep domestically generated inflation levels elevated. These findings question why some members of the Bank of England saw it appropriate to cut interest rates as early as next month.

Above: "Strongest job prospects since 2017" - Lloyds Bank.

The Barometer reported wage expectations remained elevated relative to pre-Covid levels, with higher shares anticipating 3-4% and 4-5% growth, although the proportion expecting above 5% growth remained steady.

This pickup in wages is entirely inconsistent with headline inflation falling back to 2.0% on a sustained basis and will argue for more vigilance at the Bank of England.

Firms’ own price expectations rose for a second successive month, with the net balance at a six-month high of 61%, confirming they are still willing to pass on costs to consumers.

"Own price expectations rose for a second month running to reach a six-month high, as firms look to rebuild margins even as concerns about inflation and energy prices have fallen," said the report.

Above: "Firms look to rebuild margins" - Lloyds Bank.