Businesses confidence remains steady even as the threat of stricter lockdown restrictions loom amid concerns about the spread of the COVID-19 Omicron variant.
The latest Lloyds Bank Business Barometer showed business confidence remained unchanged at 40% and above the long-term average during the two week sample period (26 November – 10 December).
This was thanks “to a rise in trading prospects, while pay and price expectations continue to be elevated," said Hann-Ju Ho, senior economist at Lloyds Bank Commercial Banking.
“Businesses face into a number of headwinds and challenging trading conditions, including higher interest rates, as we move into 2022, but many remain resilient and hopeful that acute downside risks are not realised,” he said.
“It is a challenging end to 2021 as businesses are now having to adapt to the new Omicron variant and resultant restrictions across the UK."
Sentiment dipped in the second week of polling as Omicron emerged and before the Bank of England’s decision to increase base rate to 0.25%. While confidence remained above the long-term average (28%), during the second week, there was a fall back with sentiment (32%) dropping to similar levels seen during the spring and summer.
The business confidence level reflected a rise in trading prospects (up four points to 43%), offset by a marginal dip in economic optimism (down three points to 38%).
While confidence remains significantly higher than a year ago, it suggests concerns are growing about the full extent of the Omicron variant of the virus and the potential for further restrictions. A clearer picture will emerge in January’s survey results, Lloyds said.
Despite challenges, firms are looking to recruit, with the barometer showing a slight uptick in job prospects two months after the end of the furlough scheme.
Pay expectations reached new highs of 48% and 26% for firms expecting average pay growth of 2% and 3% respectively. More than one in ten businesses (14%) anticipate pay growth of 4% or more, which remains in line with the last three months.
With continued pricing pressures being experienced across all sectors, pricing expectations have risen significantly in 2021.
The net balance of firms expecting to raise prices in the next 12 months rose to 45% (up one point from 44%). These expectations remained particularly high in the hospitality sector, while pipeline pressures have risen in manufacturing.
In the industry sectors, construction recovered to 39% from November’s seven-month low of 28%, following a minor easing in supply-chain disruptions.
Despite a slight fall in confidence in manufacturing to 40%, trading prospects in the sector have remained higher than the whole economy throughout this year. This comes as a CBI survey revealed stock adequacy of finished goods worsened to a new record-low position for the second month in a row.
There were also small declines for retail (43%) and services (39%) ahead of the festive period.
Paul Gordon, managing director for SME and mid corporates, Lloyds Bank Commercial Banking, said: “Businesses need to remain cautious as they move into 2022 as demand is set to be impacted by the rise of Omicron and likely tightening of restrictions across the UK."
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