In December, British businesses grew increasingly pessimistic about the economic prospects, experiencing the most significant monthly drop in confidence in over a year, according to a recent survey.
This decline in confidence adds to the mounting evidence of a slowdown in the United Kingdom’s economy.
The Lloyds Bank Business Barometer, which surveyed 1,200 companies spanning various sectors, registered a seven-point decline, dropping to 35% from November’s 21-month high of 42%.
This marked the most substantial monthly decrease since August 2022.
Although the December reading remained above the survey’s long-term average of 28%, it was clearly pointing in a downward trajectory.
This contrasts with the S&P Purchasing Managers’ Index for services and manufacturing, which surpassed expectations the previous week but still lingered below historical norms.
Last week, the Bank of England revised down its near-term output forecast, now anticipating “broadly flat” performance in the final quarter of the year.
This comes after 14 consecutive interest rate hikes since late 2021, with rates currently holding steady at 5.25%.
Official data revealed that Britain’s gross domestic product contracted by 0.3% in October, reflecting the challenging economic conditions.
Paul Gordon, a managing director at Lloyds Bank, emphasized the ongoing economic challenges, urging businesses to prioritize robust cash flow and carefully evaluate staffing decisions.
The survey also indicated a cooling in hiring intentions, but interestingly, more companies expressed plans to increase salaries.
Additionally, pricing expectations dropped for the first time since July.
Hann-Ju Ho, a senior economist at Lloyds, noted the complex balancing act businesses were facing.
They must navigate cost pressures while dealing with a challenging labor market, particularly as the minimum wage is set to increase in April 2024.
This occurs at a time when firms are grappling with decisions related to staff retention and recruitment.
The survey was conducted between November 28 and December 12, following the announcement of budget measures by Finance Minister Jeremy Hunt.
Notably, these measures included the permanent extension of tax incentives for business investments that were initially scheduled to expire in March 2025.