UK Business Confidence at Nine-year Highs, Wage Pressures Persist

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Despite the prospect of investor-unfriendly tax hikes in October, UK business confidence remains at its highest level in nine years.

This is according to the monthly Lloyds Business Barometer, which revealed confidence was unchanged at 50% in August, matching the highest level recorded since late 2015.

The report said businesses' optimism about the economy increased to a near three-year high while trading prospects for the coming twelve months remained strong despite a small dip.

Hann-Ju Ho, Senior Economist at Lloyds Bank Corporate and Institutional Banking, says these findings will help underpin UK growth into year-end.

"Official GDP data for the first half of this year was encouraging and the survey results indicate that solid economic performance will likely continue as we move into the second half of the year," he says.

The recruitment outlook also remained robust, even with a slight fall in the latest reading. Firms’ appetite to hire remained resilient despite this month’s slight fall. 53%, the same as last month, expect to increase their headcount in the next twelve months, while 16% (up from 14%) anticipate a reduction.

In a potential warning sign to the Bank of England, the survey revealed pay expectations edged up compared with last month, with the proportion of firms expecting average wage growth of at least 3% rising to 34% (up from 30%). The Bank of England is closely monitoring pay trends in order to establish whether inflation will surprise to the upside in the coming months.

"Hann-Ju Ho, Senior Economist at Lloyds Bank Corporate and Institutional Banking, says these findings will help underpin UK growth into year-end.

"Official GDP data for the first half of this year was encouraging and the survey results indicate that solid economic performance will likely continue as we move into the second half of the year," he says Ho.

However, the feelgood factor might not last, as the Prime Minister this week warned of difficult tax hikes ahead. Economists and political commentators say businesses and investors will most likely feel the brunt of further hikes.

But it's not all bad news in terms of government policy: the Lloyds Business Barometer finds the construction sector particularly bullish, expecting a sharp increase in output expectations.

The new government has committed to cutting red tape in an effort to stimulate a housing boom. This week Deputy Prime Minister Angela Rayner said she would force through up to 300K new homes which are being held up by te planning system. This looks to be having a positive impact on the sector.