East of England: Business confidence soars amid high hopes for growth in 2014
06:00 06 January 2014
Business confidence in the East of England has soared, with high hopes of continued growth during the first half of 2014, according to a new survey.
The latest Business in Britain report from Lloyds Bank Commercial Banking, which is produced twice a year, canvassed the views of 1,500 UK businesses.
It reveals that firms are continuing to grow in confidence, driven by expectations of stronger profits, orders and sales over the next six months.
The survey’s key Business Confidence Index tracks businesses’ views of expected sales, orders and profits for the coming six months and presents the overall “balance” of opinion, weighing up the percentage of firms that are positive in outlook against those that are negative.
In this latest report, the confidence index has increased by 11 points to 47 per cent, from 36 per cent in the previous survey in July 2013. Nationally, this is the fourth consecutive increase in the net balance of business confidence and is now just short of the survey high of 46 per cent recorded in January 1994.
Gareth Oakley, Regional Director SME Banking in London and the East, Lloyds Bank Commercial Banking, said: “This is an encouraging improvement in confidence as we start 2014 and we hope that it will lead to a sustainable UK recovery allowing East of England businesses to grow and prosper.”
Companies across the UK also remain optimistic about prospects for the economy and the overall net balance of firms that are now more confident about the economic outlook is the highest it has been since January 2007.
Two thirds of East of England businesses (66%) stated that they are currently more optimistic than they were six months ago, while less than a tenth (8%) stated that they are less so. The overall net confidence balance of 58% for East of England companies is a 22 point increase from July 2013, when the net balance was 36%.
Prospects for the first half of 2014 continue to look positive with expectations for total sales, orders and profits in the next six months, the three key indicators of business confidence, all increasing. The three indices remain well above their respective long-term averages and point to stronger economic growth in the first half of the year.
More than half of businesses (54%) said that they expect their orders to increase during the first half of the year; compared to one in 20 (5%) that think orders will fall. The resulting 50 per cent overall net balance represents an eight point increase from July 2013.
Nearly a third of businesses (61%) stated that they think their sales will increase in the next six months, while under a tenth (6%) expect a drop, leading to a 55% overall balance. This is a 12 point increase from the second half of last year.
The balance of East of England firms anticipating greater scope for increasing prices over the next six months has also increased by 14 points to 32%. Firms’ hopes of rising prices may help to underpin their expectations of stronger profits over the next six months. The net balance of firms expecting rising profits increased by 10 points to 35%.
Optimism regarding sales and orders for the next six months is also reflected in rising expectations for trade abroad.
The net balance of East of England businesses expecting increased exports over the next six months rose by 32 points to 52%, from 20% in July last year. Just two per cent of businesses expect their exports to drop in the next six months compared to more than half of businesses (54%) that expect exports to increase.
Nearly four out of ten (38%) businesses expect to grow their total exports to Europe during the first half of the year, with less than one in ten (6%) expecting a fall resulting in an overall balance of 32% saying exports to the Continent will rise. This is up from six months ago when the overall balance expecting an increase was only 10%.
Businesses’ strongest hopes for export growth lie in the Middle East/Africa region. A balance of 26% of East of England firms said they expect to see exports to these countries grow. The Asia-Pacific region follows closely with a balance of 25% expecting growth, while the US and Canada (16%) lags behind.
UK firms are also becoming more hopeful about recruitment prospects with the fourth consecutive rise in the balance of businesses expecting to hire more staff over the coming six months. Over a quarter of East of England businesses (28%) said that they will increase staff numbers during the first half of the year and one in ten (10%) said they planned reductions. This results in an overall net balance of 18% expecting to boost staff numbers, which is a rise of two points from July last year.
At the same time, the balance of companies reporting challenges in the recruitment of skilled workers was 30%. This suggests a potential strain in the market for skilled labour which could put pressure on pay growth.
Expected capital expenditure is also on an ongoing upswing. The report shows that just under a quarter of East of England businesses (23%) expect to increase their capital expenditure over the next six months while just over one in ten (14%) are planning cutbacks. This results in a net balance of nine per cent planning to ramp up investment in the first half of the year, which is an increase of two points from July last year.
Gareth Oakley continued: “Businesses are looking to export more, particularly to the Asia-Pacific region and they’re now also feeling bullish about Europe as it emerges from recession. Businesses appear to be planning to invest more in their infrastructure and staff, and we hope to see them develop and grow on the international stage.”
Business confidence increased in all regions most notably in the North and West Midlands where the balances increased by 21 and 18 points respectively. The East Midlands and East of England saw the smallest improvement of 10 points.
Trevor Williams, chief economist, Lloyds Bank Commercial Banking, said: “Businesses are now much more confident about their future trading prospects and they have a healthier appetite to invest, which is a sign that growth may be sustained into next year. The renewed confidence in recruitment prospects suggests that employment is set to rise further as economic activity picks up.
“Businesses are more bullish about exports to markets around the world and the easing of the Eurozone sovereign debt crisis is also good news. Rising demand might give more firms the scope to raise prices, but overall inflation is likely to remain near the target in the immediate future.”