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Business confidence in Yorkshire slips as global growth concerns remain

Business confidence in Yorkshire has slipped in the last six months, partly due to renewed concerns on global growth, according to the latest Business in Britain report from Lloyds Bank.

The twice-yearly report, now in its 23rd year, gathers the views of more than 1,500 UK businesses and tracks the overall “balance” of opinion on a range of important performance and confidence measures, weighing up the percentage of firms that are positive in outlook against those that are negative.

Since the last report in July 2014, the Business in Britain report’s key confidence index has decreased by 10 points to 48 per cent.

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.

Leigh Taylor, area director for SME Banking in the North East, Lloyds Bank Commercial Banking, said: “Although business confidence has slipped back, it is important to remember that the UK recovery remains on track.

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

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 Yorkshire (60 per cent) said that they expect their orders to increase during the first half of the year, while one in twenty (5 per cent) that anticipate a decline.

The resulting 55 per cent overall net balance represents a 6 point decrease from July 2014.

Similarly, 57 per cent of businesses stated that they think their sales will increase in the next six months, while a tenth (9 per cent) expect a drop, leading to a 48 per cent overall balance, a 12 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 13 points to 41 per cent.

Just over half of businesses (54 per cent) expect their profits to increase in the next six months while 13 per cent think they will fall.

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 Yorkshire companies.

The net balance of firms in the region expecting an increase in exports over the next six months fell by 13 points to 42 per cent.

One in ten businesses (10 per cent) expect their exports to drop while more than half of businesses (52 per cent) anticipate an increase.

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 18 points to 19 per cent.

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 7 points to 19 per cent while for Asia/Pacific it only fell by 13 point to 35 per cent.

Firms continue to be relatively upbeat about recruitment prospects with the balance of businesses expecting to hire more staff over the next six months decreasing by 3 points to 15 per cent.

Over a quarter of businesses (26 per cent) said that they will increase staff numbers during the first half of the year and just over one in ten (11 per cent) said they planned reductions.

At the same time, the balance of companies reporting challenges in the recruitment of skilled workers continues its post-crisis recovery with a 2 point decrease to 45 per cent.

This 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 per cent nationally.

Expected capital expenditure has also seen a decrease. The report shows that just over a third of businesses (34 per cent) expect to increase their capital expenditure over the next six months while more than over one in ten (14 per cent) are planning cutbacks.

The resulting net balance of 20 per cent is a decrease of 2 points from July 2014 but still indicates that firms are planning to ramp up investment in the first half of the year

Leigh 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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