Business confidence falls from May’s eight year high in June

Business confidence fell notably from May’s eight year high in June, a closely watched survey suggests, but remains well above the long-term average.

Lloyds Business Barometer put overall business confidence at 41 per cent in June, down nine points on the previous month but comfortably ahead of the long-term average of 28 per cent.

The survey suggested that the positive sentiment among firms about their own trading prospects has moderated. Firm confidence fell 10 points in the month, falling to its lowest level since December 2023.

Construction, retail and services firms reported the biggest dip, although confidence increased among manufacturers.

Businesses’ optimism about the economy as a whole also suffered in June, falling seven points to 39 per cent. However, this was still higher than reported in the first quarter of the year.

“These results suggest a slight drop in business confidence in June as firms’ trading outlook and economic optimism fell below levels seen in recent months. However, these results are still broadly in line with the positive readings we were seeing towards the start of the year,” Hann-Ju Ho, senior economist at Lloyds Commercial Bank said.

Last month’s figures put business confidence at the highest level since 2016, but the survey was conducted before the election was called. Political uncertainty might be a factor in explaining the fall.

Growth has also eased off from the surprisingly strong pace in the first quarter, when the UK outpaced every other G7 economy. The latest figures for April showed that the economy was stagnant.

Although business confidence eased, there was good news on inflation. Firms’ expectations for price increases fell to an 11-month low in June as cost pressures ease.

Wage growth expectations also eased with the share of businesses expected pay growth of between four and five per cent falling to a one-year low

“Fewer businesses indicated that their prices would increase in the next few months, which chimes with last week’s fall in inflation figures,” Hann-Ju Ho said.

Inflation fell to two per cent last week, its lowest level since July 2021. Markets think the Bank of England might start cutting interest rates in August.