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UK Business Confidence Rises as Consumer Spending Scores Post-Brexit Record

-UK business confidences rises, according to Lloyds Bank.

-Sales grow as investment and hiring intentions hold steady. 

-Visa data confirms summer recovery in UK consumer spending.

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Confidence among British businesses rose in line with a pickup in consumer spending in July, according to the semiannual Business in Britain survey carried out by Lloyds Bank, adding weight to economist forecasts that UK economic growth will gather pace during the second half of the year.

Business confidence, based on the outlook for demand, sales and profits, rose during July. A net 25% of firms polled in the survey reported an improvement in the outlook for the months ahead, up from the net 23% of firms that were optimistic about the future back in January when Lloyds last carried out the survey. 

The uptick in confidence was supported by an increase in the number of firms reporting their sales have grown during recent months, with 27% of companies surveyed saying sales were up during the six months to July, which is an improvement on the 23% of firms that said the same back in January. 

Intentions for business investment spending and new hiring were also broadly steady this month, with the proportion of companies reporting difficulty in securing skilled labour rising to 49%, up from 46% six months ago. A net 12% of businesses expect to increase investment during the months ahead, down by a fraction from the net 13% seen in January.

"The outlook for the external environment remains mixed. Business investment and hiring intentions remain at similar levels to January’s report, but Brexit uncertainty and weaker UK demand were called out as being businesses’ biggest concerns for the next six months," says Sharon Geoghegan, managing director of SME Banking at Lloyds Bank. "Rising international headwinds – in the form of further clarity needed on the future EU trading relationship and political uncertainty – are likely to restrain confidence for the rest of the year."

Beyond reporting the simultaneous increase in sales, the Lloyds survey does not attempt to explain the increase in condidence. However, the Business in Britain survey was released alongside the latest retail spending statistics from Visa Inc, which showed warmer weather and the football World Cup supporting an increase in consumer spending during June. 

UK consumer spending measured by payment technology firm Visa saw its first back-to-back increase for more than a year during June, further supporting expectations that UK economic growth may gather pace in the second-half of the year. 

Visa's UK Consumer Spending Index pointed to a 0.7% increase in retail spending during June, according to data released Monday. Although down from the 0.9% growth seen back in May, this is the first time UK retail sales measure by Visa have grown for two consecutive months since the beginning of 2017. 

Moreover, spending growth in bricks and mortar shops was faster than that seen by online businesses during June, also for the second consecutive month in quite some time.

Furthermore, despite that the rate of spending growth in bricks and mortar stores soften in June when compared with the previous month, the last two months combined together have marked the strongest sales performance for the UK high street since the start of 2016, before the Brexit referendum. 

“June’s encouraging data marks the first back-to-back monthly increase in consumer expenditure since spring 2017. With the Hotels, Restaurants & Bars and Food & Drink categories performing strongly in the month, there are clear signs that the British public has been getting into the World Cup spirit, while the good weather is also likely to have played its part," says Mark Antipof, chief commercial officer at Visa. 

Monday's data is noteworthy because it suggests retail spending picked up at the end of the second quarter and points to scope for a further recovery during the months ahead. 

UK consumer spending has softened during the two years since the EU referendum as a rise in consumer price inflation, at a time when wages are growing at only meagre levels, reduced the overall value as well as volume of goods that households could afford to buy. This made a material contribution to the slowdown in the broader economic growth, which was hampered by lower consumer spending as well as the rise in inflation, which reduces "real GDP".

UK GDP growth was just 1.8% in 2017, down from 1.9% previously, while economic growth fell from 0.4% during the final quarter of 2017 to just 02% in the first quarter of 2018.

This had left many economists fearing a more protracted slowdown through the rest of the year, and also persuaded the Bank of England to eschew an interest rate rise in May, although Monday's data could help draw a line under these concerns.

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