Lloyds Bank has warned that economic optimism among UK businesses has fallen sharply, with confidence dropping to 31% in June, well below the 12-month average of 38%. The bank's Business Barometer found that overall business confidence fell by three points to 44%, compared to a 47% average over the past year.
Manufacturing Confidence Plunges
Confidence in the manufacturing sector saw a significant decline, dropping by 10 points to 33%, far below its 12-month average of 46%. This marks a sharp reversal from previous months, driven by softer demand and ongoing cost pressures. The retail sector also experienced a decline in confidence, falling from a strong reading in May, mainly due to a drop in economic optimism.
Cost Pressures and Global Uncertainty
The Lloyds Business Barometer highlighted that firms reported lower confidence in both their economic optimism and trading outlook. Cost pressures increased by 2 points, while global uncertainty rose by 7 points, both contributing to the dip in optimism. Domestic firms were particularly affected, with economic optimism falling 21 points to just 3%, an 18-month low and significantly below the 12-month average of 20%.
Trading Outlook and Hiring Intentions
Businesses' own trading outlook decreased by two points in June to 56%, compared to a 12-month average of 57%. However, 64% of firms (down two points from May) still expect stronger output over the year ahead, while the share expecting weaker activity remained unchanged at 8%. Hiring intentions rose for the first time in three months, with the share of firms planning to increase their workforce up two points to 55%, and those anticipating headcount reductions down three points to 14%.
Sector-Specific Insights
Amanda Murphy, CEO of Lloyds Business and Commercial Banking, said: “While cost pressures and global uncertainty continue to weigh on business confidence, international firms are much more confident with many seeing signs of supply chain disruption easing and strengthening customer demand. More broadly, we’ve recently seen an uptick in investment towards energy security and efficiency to support long-term resilience. Where firms are hiring, they’re recruiting highly specialist skills to meet strengthening demand and expand capacity.”
Hann-Ju Ho, Senior Economist at Lloyds Commercial, added: “The June data shows a more uneven picture across sectors than in May. Manufacturing and Retail both saw significant declines in confidence, with Manufacturing in particular dropping sharply and now sitting below its 12-month average likely reflecting a mix of softer demand and ongoing cost challenges. Retail also fell from a strong reading in May, driven by a fall in economic optimism. By contrast, construction saw a modest improvement in confidence and was the only sector to report stronger expectations for its own trading outlook. Services remain broadly steady, although the underlying picture is mixed, with stable demand offset by continued cost pressures. Overall, while some sectors are holding up, the data suggests that uncertainty is still feeding through unevenly and weighing more heavily on parts of the economy than others.”
