Business confidence hits a two year high

Nia Williams

December 16, 2009

They do, however, remain cautious about the challenges that lie ahead, according to the latest Business in Britain survey from Lloyds TSB Commercial.

The six monthly report charts the performance of 1,732 UK companies and their views on prospects for the coming year. Its business confidence index, which tracks firms’ expectations for sales, orders and profits, over the coming six months, has risen to a balance of 16%, from -3%, in June this year. This is also a significant rise from the record low of -32%, at this point last year – and is the highest balance since December 2007.

A closer look at the confidence index shows that expectations for both sales and orders have started to recover. The balance of firms anticipating an upturn in sales has climbed to 21% – from just 1% six months ago – with 41% expecting an improvement and 20% braced for a decline. And hopes for orders are also looking brighter. The balance expecting order levels to rise over the coming six months has climbed to 23%, from just six% in the last survey.

On the strength of this improved outlook for sales and orders, businesses are more hopeful of better profits in the first half of 2010. Expectations are still mixed, but for the first time in 18 months, the balance of companies expecting better profits over the next six months was positive – rising to 3%, from a negative balance of -16% in June.

Another reason businesses may be expecting improved profitability, is because they are more hopeful about their scope to raise prices over the next six months. This year, more firms have reduced prices than have raised them, but now a fifth of businesses (21%) say they expect to increase prices, while just one in ten (11%) expect to cut – a balance of 10%. However, it is still the case that inflationary pressures remain low, in general, with spare capacity remaining in the economy and less evidence of skills shortages.

The growing confidence amongst businesses is another indication that the recovery may start to gain momentum in the New Year, but firms remain wary of a number of challenges on the road ahead.

Despite the brighter outlook for profits, the overall view amongst businesses is that they will still need to rein in investment spending over the next six months, or at least keep it on hold. A fifth (18%) expect to be able to boost investment over the next six months, while a quarter (23%) expect they will need to make cuts. This results in a negative balance of -5%, but is still a significant improvement on the last survey, where the balance had plunged to -20%.

John Maltby, managing director Lloyds TSB Commercial said: “There are still many question marks over the likely strength and shape of the recovery. But confidence is the bedrock of every economy, and with businesses now more optimistic about their prospects for the year ahead, there is good reason to be hopeful that the upturn will gather pace early in 2010.”

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