UK business confidence dips in May, inflation pressures persist: Lloyds

LONDON  – Sentiment among British businesses fell for the first time in three months in May as firms were less optimistic about the economy and their trading prospects despite some signs of resilience in the economy, a survey showed on Wednesday.

The Lloyds Bank Business Barometer fell to 28 percent in May from 33 percent in April, its first decline since February, but in line with the survey’s long-term average.

“The UK has avoided an outright contraction in GDP – indicating a certain amount of underlying resilience in the economy,” Hann-Ju Ho, senior economist at Lloyds Bank said.

Lloyds said the confidence decline this month potentially reflects firms having already accounted for the more upbeat economic news in recent months.

While Britain’s economy has so far fared better than predicted this year, beating many forecasts of a recession, consumer price inflation fell by less than expected to 8.7 percent in April.

Ho said the economic environment remains challenging, compounded by stubborn inflation and higher wage pressures.

The gauge of businesses’ optimism about the wider economy fell by six points to 22 percent and trading prospects for the next twelve months fell for a second month in a row.

Other surveys – such as the closely-watched S&P Global Purchasing Managers’ Index (PMI) gauge of business activity -showed services firms increased prices at a rapid pace, potentially adding to inflationary pressures.

More than half of companies surveyed by Lloyds intended to raise their prices in the coming 12 months.

The Bank of England has increased interest rates 12 times since December 2021 and is expected to raise Bank Rate further in the coming months in an effort to tame high inflation.

Lloyds said wage growth fell marginally but remained elevated compared with pre-COVID levels, with nearly a third of businesses expecting pay to increase by at least 3 percent.

Other industry surveys have shown even bigger pay increases. Human resources data company XpertHR last week reported pay deals held at 6 percent in the three months to April, the highest median pay settlement since September 1991.

Lloyds also said its gauge of hiring intentions fell back slightly to 24 percent in May, down from the ten-month high of 27 percent reported in April.

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