UK Business Confidence Wavers, but Experts Assert Growth Remains Possible

Business confidence fell in January, driven by growing concerns about the wider economy rather than individual business performance.

Overall, confidence dropped by two percentage points to 37%, with just over half of companies expressing optimism about their own trading prospects, while just under a quarter remained positive about the broader economy. This marks the fourth decline in five months in companies’ outlook on the economy, with the score falling seven points from December to 24%, according to Lloyds’ Business Barometer.

Despite the broader economic pessimism, a majority of companies, about three-fifths, remained optimistic about their output over the next 12 months. Only 9% expected a decline in activity during the same period. The net figure for trading prospects stood at 51%, marking a strong recovery from the six-month low recorded in December.

“The figures for trading prospects show promise, with businesses showing more resilience and confidence in their ability to navigate perceived economic challenges,” said Hann-Ju Ho, senior economist at Lloyds.

Business confidence reached its lowest point in 2024 in December, as concerns over layoffs and rising costs hampered growth opportunities.

However, the regional picture offers optimism, with seven regions reporting higher confidence, marking the first time since July that more regions showed confidence increases than decreases.

Labor Demand Drops Slightly

Lloyds’ barometer for headcount showed a slight decline of one percentage point to 32%, its lowest level since June 2024. Despite this, almost half of the participating companies (49%) expect to increase their workforce numbers over the next year, while only 17% plan to reduce headcount.

The retail and services sectors saw modest improvements this month, although confidence in the retail sector remained low. Business services and health-related services showed strong demand for labor, while hospitality, which is particularly vulnerable to labor tax changes, saw a notable decline in confidence.

“With confidence dipping in some sectors, particularly retail and manufacturing, it’s important that we provide companies with the right support to help them grow and succeed,” said Paul Kempster, managing director for commercial banking coverage at Lloyds Business & Commercial. “It’s clear that the UK has the potential to drive growth.”

Price Expectations Decline Slightly

Fewer businesses—61% compared to 64% last month—reported expecting to raise prices for goods and services, marking the lowest level since last September, prior to the budget. This decline was most pronounced in manufacturing and construction, with smaller drops in retail and services.

Higher prices are still anticipated in low-margin, labor-intensive sectors like retail and hospitality, which have been particularly impacted by post-pandemic challenges. According to Lloyds, “Price expectations remain elevated compared to pre-pandemic levels.”