Yorkshire business confidence lowest in UK despite growing investment plans, says Lloyds report
Business confidence in Yorkshire has dropped to the lowest level in the UK, while recruitment plans have fallen and pay rises stalled, but investment still looks set to improve, according to the latest Business in Britain report from Lloyds Bank.
Business confidence – calculated as an average of respondents’ expected sales, orders and profits over the next six months – dropped to 15% across the Yorkshire and Humber region compared with 23% in July 2017. It was the lowest confidence level recorded of all 11 UK regions.
The net balance of firms looking to hire more staff dropped by 13 points to 1%, compared with July 2017. The net balance of firms intending to increase pay over the next six months fell from 12% to zero.
Despite reduced optimism, the net balance of firms looking to grow investment and capital expenditure in the next six months increased by five points to 15%.
Access to talent was again reported as a key challenge for the region’s firms. The proportion of businesses reporting difficulties hiring skilled labour fell 10 points but remained relatively high at 38%.
The Business in Britain report, now in its 26th year, gathers the views of more than 1,500 UK companies, predominantly small to medium sized businesses, and tracks a range of performance and confidence measures, weighing up the percentage of firms that are positive in outlook against those that are negative.
Yorkshire business’ lack of confidence is in stark contrast to its neighbouring regions’. The North East is the most confident region in the UK (38%), followed by the North West (31%).
Steve Harris, regional director for Yorkshire & The Humber at Lloyds Bank Commercial Banking, said: “It’s disappointing to see optimism falling to this degree among Yorkshire firms in comparison with the growing confidence seen in neighbouring regions.
“Concerns over the devolution deadlock, transport infrastructure investment and weaker domestic demand for goods and services may well have played a role in local businesses’ pessimistic outlook.
“While confidence has dropped from July, it’s still broadly in line with the sentiment felt this time last year. Encouragingly, Yorkshire firms remain stoic with their investment plans.”
Meanwhile, the latest Business Trends Report by BDO has found that firms are now more confident about their fortunes in 2018; likely bolstered by the news that the government is making progress in its Brexit negotiations.
BDO’s Optimism Index, which indicates how firms expect their order books to develop over the coming six months, increased to 102.15 in December from 102.05 in November, above its long-term average.
However, despite the positive outlook for 2018, business output growth has fallen to a 23-month low. BDO’s Output Index, which indicates UK business output for December, fell to 98.45, from 98.99 the previous month. Business output growth has now fallen for the past five consecutive months.
The UK’s falling output growth is being driven by the slowdown of the services sector, which accounts for almost 80% of all UK GDP. BDO’s Services Output Index also sits at a 23-month low, falling from 98.95 to 98.21 in December. The sector has been weighed down by Brexit uncertainty which has since been reduced following the progress made in December which has led to the rise in optimism.
Meanwhile, UK manufacturing output continues to strengthen. In December, BDO’s Manufacturing Output Index climbed above the long-term trend of 100 for the first time in four months, rising to 100.33 from 99.33 in November.
The rise in business optimism is also being reflected in the jobs market. BDO’s Employment Index, which indicates firms’ employment intentions, has increased 0.2 to 111.26 in December, which is well above the long-term trend and only just below its record high of 111.72. The findings suggest that employment levels could surpass the records set in September last year.
Peter Hemington, BDO partner, said: “UK businesses collectively breathed a sigh of relief when progress towards Brexit was announced at the end of the 2017. Business leaders are now more confident about the year ahead and are bolstering their recruitment efforts as a result. However, despite unprecedented levels of employment, business output continues to slow.”
“While the government prioritises securing our future outside of the EU, it must not overlook the immediate challenges stifling the growth of our economy. The perennial productivity problem must be addressed by accelerating investment in infrastructure and training before we fall further behind our G7 counterparts.”
