Overall business confidence has declined slightly in Yorkshire in the last six months, however, companies expect an improvement in exports and to increase investment levels in H2, according to the latest Business in Britain report from Lloyds Bank.
The twice-yearly report, now in its 23rd year, gathers the views of 1,500 UK companies, predominantly small to medium sized businesses, and tracks overall business confidence, which is based on the balance of firms expecting an increase in sales, orders and profits over the next six months.
Since the last report in January 2015, business confidence in Yorkshire has declined by two per cent to 46 per cent. Expectations for sales and orders suggests that the pace of economic activity will continue at a more modest rate in the second half of 2015.
Despite the ongoing uncertainties in the Eurozone, European exports looks set to increase by nearly a third. The net balance of Yorkshire firms expecting an increase in trade with Europe in the next six months has grown by 29 points to 32 per cent.
The survey shows that, in the last six months, the number of Yorkshire firms that experienced a decline in total exports was 29 per cent, compared to 52 per cent that saw exports grow.
Looking ahead, 29 per cent of those currently exporting said that weaker UK demand poses the greatest threat to their business in the next six months, which could explain why firms plan to increase their sales in global markets.
Jon Pulford, area director for SME Banking in the East Midlands and South Yorkshire, said: “Business confidence has remained relatively steady in Yorkshire, with encouraging expectations for sales, orders and profits for the rest of the year. This has been underlined by the bounce-back in exports to Europe as well as companies’ intentions to grow their presence further on the international stage this year.”
The number of Yorkshire companies reporting difficulties in recruiting skilled labour in the past six months has increased from 45 per cent to 46 per cent. Meanwhile the proportion of Yorkshire businesses reporting that they are operating at full capacity has risen by three points to 57 per cent.
Both these developments could put pressure on firms to raise prices in the coming months.
Overall, the number of Yorkshire companies planning to increase their staffing levels in the next six months has increased by five points to 35 per cent, and remains at a strong level, which bodes well for further job creation in the second half of the year.
Trevor Williams, chief economist, Lloyds Bank Commercial Banking, said: “The fact that more UK companies are reporting difficulties in recruiting skilled labour suggests that spare capacity in the labour market is closing, increasing the likelihood of further wage rises. Without productivity improvements, or price inflation exerting some moderating influence on wages, firms may have to respond by eventually raising the price of their goods and services.”
Yorkshire firms’ investment spending trends are also anticipated to improve in the next six months. The net balance of businesses planning to increase capital expenditure has risen by three points, from 34 per cent to 37 per cent.
When asked how much they plan to invest in the next six months, just 15 per cent of Yorkshire businesses said nothing, while at the higher end of the scale, seven per cent of firms plan to invest more than £1million.
Nationally, sectors with a high net balance of increasing capital expenditure included hospitality & leisure (30 per cent) and real estate (33 per cent) while healthcare (10 per cent) and the public sector (8 per cent) were at the lower end of the scale.
While overall business confidence has remained unchanged, sentiment across manufacturing, construction and hospitality & leisure have all seen improvements.
The biggest increase is in the UK construction sector in which confidence levels have risen by 14 points to 50 per cent. This is reflected by a rise in confidence for incoming orders for the remainder of the year, as the net balance rose eight points to 56 per cent having fallen 22 points in January. Similarly the net balance of construction firms anticipating an increase in their capital outlays rebounded strongly, with an 18 point gain to 24 per cent.
Confidence scores across the remaining sectors were broadly similar to the start of the year apart from transport & communications, which decreased by five points to 34 per cent. This was driven by a fall in the sector’s expectation of profits, which declined by nine points to 32 per cent.
Mr Pulford added: “Positively businesses remain eager to invest in infrastructure and staff for the long term and while certain challenges remain on the horizon – such as uncertainty in the eurozone, a potential rise in interest rates and inflationary pressures – the overall outlook is strong for the UK, particularly in the construction and manufacturing sectors.
“We are playing our part to help Britain prosper by helping businesses to start up, expand and trade overseas – with our new UK Trade and Investment partnership forming a central part of this plan. Businesses have good reasons to remain confident as the long-term health of the UK continues to improve.”