Business Confidence in the UK Climbs to Ten-month High

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Business confidence is at a ten-month high, according to the Lloyds Bank business barometer.

A large portion of the renewed optimism comes from easing wage demands when compared to last year’s highs.

There’s a growing belief that businesses are able to recruit staff, which helps keep a ceiling on the wages that need to be offered to fill vacancies.

That said, wages are still expected to climb, it’s simply that the rate of growth is anticipated to come off the boil.

Broader economic optimism is also playing a part, with the UK expected to avoid a recession this year.

"Business confidence gained a further 11 points to 32% in March, the highest level since May 2022. Confidence has risen in three of the last four months and is above the long-term average of 28% for the first time since May." - Lloyds Bank.

The expectations around wages have important implications for the economy and UK market.

Wage inflation is one of the biggest problems keeping UK inflation high, which in turn heaps pressure on policymakers to take heat out of the labour market.

A tempering of pay packets sets the stage for more normal inflation reads, and ultimately opens up the path to better financial and economic health.

"The increase in this month’s business confidence reflected solid increases in both the outlook for businesses’ trading prospects and their optimism regarding the broader economy." - Lloyds Bank.

There will also be some positive ruffling of economic feathers on news the UK has signed a deal to join a trade pact with 11 Asia and Pacific nations.

This comes three years after the UK left the European Union and is set to boost exports by lowering tariffs on certain products.

This is a step in the right direction, but the changes will have a minimal impact on the size of the UK’s economy, at least for now.

Sophie Lund-Yates is lead equity analyst at Hargreaves Lansdown.