South East: Business confidence at highest level since August

Business confidence in the South East rose seven points during January to -4%, according to the latest Business Barometer from Lloyds Bank Commercial Banking.

Companies in the region reported higher confidence in their own business prospects month-on-month, up eight points at -3%. When taken alongside their views of the economy, up six points on December to -5%, this gives a headline confidence reading of -4%.

The Business Barometer questions 1,200 businesses monthly and provides early signals about UK economic trends both regionally and nationwide.

Almost two-thirds (64%) of firms said current Covid-19 restrictions had caused a fall in turnover but they expected the effects of the vaccine programme to boost trading prospects for 2021, with 66% saying the rollout had made them feel more confident about the year ahead. However, only 15% expect trading levels to return to pre-pandemic levels in the next twelve months.

When it comes to jobs, a net balance of 18% of businesses in the region expect to reduce staff levels over the next year, up two points on last month.

Nationally, overall business confidence dipped in January as the third lockdown came into force, falling by three points to -7%. Firms’ economic optimism dropped dramatically month-on-month, decreasing by 34 points to -10%.

Almost all UK nations and regions saw a month-on-month dip in confidence during January, with the biggest falls reported in Scotland (-32% vs -9% in December), Wales (-20% vs -1% in December) and the South West (-8% vs 5% in December). However, firms reported a month-on-month increase in confidence in London (up five percentage points to 3%) and the North West (up eight percentage points to -5%), as well as the South East (up seven points to -4%). Yorkshire business confidence remained steady month-on-month at -4%.

Paul Evans, regional director for the South East at Lloyds Bank Commercial Banking, said: “Despite the impact of the latest lockdown on businesses across the South East, it’s encouraging to see local firms’ confidence continue to rise in January. This could be a result of the region’s strong technology hubs being able to continue operating in a relatively uninterrupted way despite restrictions.

“With the roll-out of the vaccine gathering pace, firms are more optimistic that trading prospects will improve this year, and we’ll remain by the side of businesses to help them emerge from the pandemic in as strong a position as possible.”

In the industry sectors confidence remained above pre-vaccine levels (chart 4). While some sectors reported declines, manufacturing slipped by nine points to 9%, services fell by four points to -9% and retail by five points to 6%. Confidence levels in the construction sector improved for a second month, rising four points to -1%.

Hann-Ju Ho, senior economist, Lloyds Bank Commercial Banking, said: “It has been a challenging start to the New Year for UK businesses adapting to a third national lockdown alongside the new EU trade arrangement taking effect. Nevertheless, while confidence remains below average, it is encouraging that business sentiment is still the second-highest since the low of May 2020. Overall, the vaccine rollout programme has lifted confidence and that will hopefully buoy business optimism in the coming months.”