Business confidence droops over debt

This is according to the latest Lloyds TSB Corporate Markets Business Barometer for June.

The survey – a snapshot of businesses’ views on their own performance and wider economic prospects – shows that firms are far less optimistic about the economic outlook than last month, largely as a result of the continuing worries over the European sovereign debt crisis.

The number of firms saying that they are ‘more optimistic now than three months ago’ has slipped 13 points to 47 per cent, while the percentage that are more pessimistic has edged up three points to 27 per cent. This has resulted in an overall confidence balance of 20 per cent – a 16 point drop on the previous month.

Despite this dent in confidence about the economic outlook, businesses’ faith in their individual prospects has proved more resilient. The balance of firms that believe their business activity will pick up over the coming year has risen four points to 35 per cent. A total of 42 per cent of firms said they expect an increase in business over the next 12 months, while seven per cent said they expected a slowdown.

Across the sectors, both services and distribution firms say they are more optimistic about their own business prospects – with an increase of eight per cent and five per cent respectively. However, confidence amongst manufacturing firms for the year ahead slipped five points in June to 18 per cent – a marked contrast to the findings of the recent PMI manufacturing survey.

There is also a mixed picture across the regions. In the Midlands, there was a strong rebound in confidence about business prospects. The balance of firms in the region expecting rising activity over the coming year rose to 36 per cent, while in the North and South the balance fell 6 and 12 points, respectively.

Trevor Williams, chief economist, Lloyds TSB Corporate Markets, said: “Worries about the European sovereign debt crisis are clearly still weighing on the minds of businesses, and we’re seeing confidence in the broader economy dip as a result. But so far, companies remain upbeat about their own business prospects.

“There is always a risk that if confidence in the wider economy weakens further, businesses could start to worry more about their own fortunes but, for the time being, optimism levels are broadly flat.

“The next few months will be critical. The Business Barometer has proved to be a strong lead indicator of GDP – and given the decline in business confidence over recent months, downside risks for growth have risen. There is a chance that we may see one or two quarterly periods of negative growth, however, based on these figures a sustained fall in GDP remains extremely unlikely.”