21-month High for UK Business Confidence, But Prices Continue to Rise

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UK businesses are decidedly more chipper about their prospects as we approach the end of a challenging year, but firming hiring intentions and price indicators suggest inflationary trends are not fading as fast as the Bank of England would like.

According to the Lloyds Business Barometer, business confidence in November increased for a second straight month by 3 points to 42%, reflecting gains in both own trading prospects in the next twelve months and optimism about the overall economy.

In fact, the net balance for trading prospects increased by 4 points to 48%, the highest level for nearly 5 years.

"Business confidence rising to a 21-month high shows the resilience of UK companies, as both trading prospects and economic optimism continue to rise," says Hann-Ju Ho, an economist at Lloyds Bank.

All the major sectors of the economy are benefiting, with sentiment in services at the highest for over two years, while retail rose for a second month and manufacturing was at a 5-month high.

Above: Trading prospects at a near 5-year high.

But price indicators in the survey remained elevated, warned Lloyds, "the net balance expecting to increase their prices rose for a fourth consecutive month to a new peak of 61%."

This will worry the Bank of England, which has been at pains over the past two weeks to warn that UK inflation will remain above its 2.0% target for an extended period of time.

The prospect of imminent price cuts will be further dashed by signs of ongoing tightness in the UK labour market, with the Business Barometer revealing firms reported the strongest hiring intentions for 18 months.

Above: Firms' own pricing hits another new high.

Demand for staff is having a predictable knock-on effect on wages, with firms reporting expectations for wage growth remaining historically elevated.

But Lloyds reports expectations for average wage growth in the next twelve months were broadly stable despite strengthening hiring intentions.

"It's encouraging to see signs that wage expectations may be stabilising, even against the backdrop of hiring intentions increasing to an 18-month high," says Hann-Ju Ho.

The survey was carried out ahead of last week's 'pro-business' Autumn Statement from the Chancellor, the impact of which should be reflected in December's survey.