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Business confidence high for northern firms

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Business confidence in the North is soaring, fuelling hopes of continued growth in the first half of 2014, according to the latest Business in Britain report from Lloyds Bank Commercial Banking.

The twice yearly report, now in its 22nd year, canvasses the views of 1,500 UK businesses and shows 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 22 points to 44 per cent, from 22 per cent in the previous survey in July 2013.

This accompanies the fourth consecutive national increase for the net balance of business confidence and is now just short of the survey high of 46 per cent recorded in January 1994.

Leigh Taylor, regional director SME banking in the Midlands and North, 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 Northern 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.

Just under two thirds of Northern businesses (63 per cent) stated that they are currently more optimistic than they were six months ago, while less than a tenth (8 per cent) stated that they are less so with an overall net confidence balance of 55 per cent.

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 in the North (56 per cent) said that they expect their orders to increase during the first half of the year; compared to just one in twenty (five per cent) that think orders will fall. The resulting 51 per cent overall net balance represents a 23 point increase from July 2013.

Just under six out of ten Northern businesses (58 per cent) stated that they think their sales will increase in the next six months, while just under a tenth (nine per cent) expect a drop, leading to a 49 per cent overall balance.

This is a 22 point increase from the second half of last year.

The balance of Northern firms anticipating greater scope for increasing prices over the next six months has also increased by 21 points to 29 per cent.

Firms’ hopes of rising prices may help to underpin their expectations of stronger profits over the next six months.

The net balance of Northern firms expecting rising profits increased to 45 per cent beating the national survey high of 38 per cent seen in 1993.

Optimism regarding sales and orders for the next six months is also reflected in rising expectations for trade abroad. 

The net balance of businesses in the North expecting increased exports over the next six months rose by twenty-two points to 49 per cent, from 27 per cent in July last year.

Just over one in 20 businesses (seven per cent) expect their exports to fall in the next six months compared to more than half of businesses (56 per cent) that expect exports to increase.

Nearly four out of ten (38 per cent) Northern businesses expect to grow their total exports to Europe during the first half of the year, with less than one in ten (nine per cent) expecting a fall resulting in an overall balance of 29 per cent saying exports to the Continent will rise.

This makes a sharp increase from six months ago when the overall balance expecting an increase was 11 per cent.

Northern businesses’ strongest hopes for export growth lie in Europe.

A balance of 29 per cent said they expect to see exports to these countries grow.

Asia and the Pacific follows closely with a balance of 17 per cent expecting growth, while the Middle East and Africa (15 per cent) lags slightly behind.

Firms are also becoming more hopeful about recruitment prospects with the fourth national consecutive rise in the balance of businesses expecting to hire more staff over the coming six months.

Over a quarter of Northern businesses (26 per cent) said that they will increase staff numbers during the first half of the year and nearly one in ten (nine per cent) said they planned reductions.

This results in an overall net balance of 16 per cent expecting to boost staff numbers, which is a rise of eight points from July last year.

At the same time, the balance of companies reporting challenges in the recruitment of skilled workers continues its post-crisis recovery with an eight point increase to 34 per cent.

The recent increase suggests a potential strain in the market for skilled labour which could put pressure on pay growth, although the index is still well below its national 1997-2007 readings which averaged 47 per cent.

Expected capital expenditure is also on an ongoing upswing.

The report shows that just over a quarter of businesses in the North (26 per cent) expect to increase their capital expenditure over the next six months while just one in ten (11 per cent) are planning cutbacks.

This results in a net balance of 15 per cent planning to ramp up investment in the first half of the year, which is an increase of ten points from July last year. The national net balance has been in positive territory for three consecutive survey periods, for the first time since 2006.

Mr Taylor added:

“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.”

In light of growing hopes for exports, weak UK demand is no longer such a worry for businesses. A third of UK businesses (31 per cent) have concerns about domestic markets, which is a significant drop from July 2013 when nearly half (45 per cent) of businesses stated it was the biggest challenge they faced.

Similarly, cashflow is now much less of concern for majority of British businesses.

More than Eight out of ten (85 per cent) businesses stated that they are not currently experiencing cashflow problems – a seventeen point increase from 68 per cent in July 2013.

Across the UK, business confidence increased particularly strongly for companies with a turnover between £1-£15m and for those turning over more than £15m.

The net confidence balance for these firms is up 18 and 19 points respectively leaving both at 49 per cent.

The overall net confidence balance for firms with a turnover below £1m is 34 per cent which is an increase of five points from the previous survey.  

Business confidence rose in all sectors across the UK, for the third consecutive survey.

All sectors reported double digit increases, with the exception of ‘business and other services’, which saw an eight point rise.

The retail and wholesale sectors reported the largest increase in confidence – a 20 point jump to 44 per cent; followed by manufacturing, up by 19 points to 57 per cent; and transport and communication which rose 18 points to 46 per cent.

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 & 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.”

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