Business confidence in East hit by concerns over global outlook

Steve Elsom of Lloyds Bank Commercial Banking.

Steve Elsom of Lloyds Bank Commercial Banking. - Credit: Archant

Business confidence in the East of England has dipped at the start of the new year amid renewed concerns over global growth prospects, according to a new report.

The twice-yearly Business in Britain report from Lloyds Bank shows that confidence in the region – covering an area from Lincolnshire to the Thames Valley and including the whole of East Anglia and the East Midlands – has fallen 17 points to 40% from the record high of 57% reported last July.

Lloyds says this was largely driven by decreases in firms’ expectations of profits and orders over the next six months, reflecting a more cautious outlook for continued economic growth in 2015.

However, Steve Elsom, area director for SME banking in the East of England at Lloyds Bank Commercial Banking, said: “Although business confidence has slipped back, it is important to remember that the UK recovery remains on track.

“Companies in the East should continue to think about their priorities and how they can best grow their businesses as we start the New Year.”

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Expectations for total sales, orders and profits in the next six months, the three key indicators of business confidence, have all dropped but remain above their long-term average.

Over half of businesses in the East of England (53%) said that they expect their orders to increase during the first half of the year, while one in 10 (10%) that anticipate a decline. The resulting 43% overall net balance represents a 14 point decrease from July 2014.

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Similarly, 53% of businesses stated that they think their sales will increase in the next six months, while over a tenth (13%) expect a drop, leading to a 40% overall balance, a 21 point decrease from the middle of the year.

This decline in optimism for sales and orders has taken its toll on expectations for profits. After rising in recent surveys, the net balance of firms expecting profits to rise dropped by nine points to 37%. Less than half of businesses (48%) expect their profits to increase in the next six months while 11% think they will fall.

Lloyds says that, despite indices falling back from the previous survey, these figures taken together indicate that economic growth will continue at a moderate pace in the first half of 2015.

The weaker optimism regarding sales, orders and profitability for the next six months is mirrored by dampened expectations for exports among companies in the East of England. The net balance of firms in the region expecting an increase in exports over the next six months fell by 23 points to 31%. One in 10 businesses (16%) expect their exports to drop while almost half of businesses (47%) anticipate an increase. This was down from 57% at July 2014 and reflects the continuing uncertainty in the global marketplace.

A large part of the decrease was due to firms’ expectations on eurozone exports. The net balance of companies that expect to increase their exports to Europe declined by 24 points to 16%.

Firms’ expectations on increasing their exports beyond Europe did not suffer as big a decline. The net balance of companies expecting an increase in exports to US/Canada dropped by 17 points to 12% while for Asia/Pacific it only fell by seven points to 17%.

Hiring and investment intentions have eased but remain relatively strong. Firms are still relatively upbeat about recruitment prospects with the balance of businesses expecting to hire more staff over the next six months decreasing by seven points to 16%.

Almost a third of businesses (29%) said that they will increase staff numbers during the first half of the year and more than one in 10 (13%) said they planned reductions.

At the same time, the balance of companies reporting challenges in the recruitment of skilled workers saw a two point increase to 37%. This rise suggests a potential strain in the market for skilled labour which could put pressure on pay growth. However the index is still below its 1997-2007 readings which averaged 47%.

Expected capital expenditure has also seen a decrease. The report shows that just under a third of businesses (32%) expect to increase their capital expenditure over the next six months while more than one in 10 (16%) are planning cutbacks.

The resulting net balance of 17% is a decrease of six points from July 2014 but still indicates that firms are planning to ramp up investment in the first half of the year

Mr Elsom added: “The uncertainty in Europe and across the globe more widely in the second half of the year has clearly affected businesses’ intentions to export. While some economic factors will be beyond their control, businesses need to explore the growth economies beyond the traditional export markets of Europe and the US.

“The employment and capital investment figures are encouraging, implying that firms remain eager to invest in infrastructure and staff for the long term. The right people and resources will help secure a more sustainable income and help them grow on the international stage.”

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