Nearly 50% of UK businesses considering increasing prices

Business confidence in the UK has remained steady despite concerns around rising prices and inflation.

According to the latest business barometer from Lloyds Bank (LLOY.L), confidence took a marginal dip in January, down one point to 39%.

The small drop in confidence reflected a slight fall in trading prospects, down two points to 41%, and economic optimism, which fell one point to 38%. However, confidence remains above the long-term average of 28%.

Economic optimism was down for a fourth month but was still at a historically strong level, partly reflecting that businesses are expecting to transition to more normalised growth rates as economic output returns to pre‑pandemic levels, Lloyds said.

It revealed that price expectations reached a new high, with nearly half of firms surveyed (49%) looking to raise prices due to increased costs.

Two-fifths (39%) said their main response to higher costs was to raise prices, compared to 29% that said it was to absorb costs.

Despite ongoing inflationary challenges, pay pressures eased during the month. Firms expecting average pay growth of 2% dropped to a five-month low, down seven to 41%.

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Similarly, hiring intentions were more downbeat in January, reaching their lowest level since August despite nearly half of firms (46%) expecting to increase their headcount in the next twelve months.

However, 17% of firms plan to reduce their staffing levels over the coming year, resulting in net balance dropping four points to 29%.

The survey recorded responses between 4 January and 18 January before the UK government eased Plan B measures and the work from home guidance.

On a regional level, six of the UK’s 12 regions recorded increases in confidence, with Yorkshire and the Humber being the most confident, up 13 points to 48%. It replaced the North East, which was down 18 points to 40%.

Despite a slight fall, the East of England came in as the second most confident region, down three points to 47%, replacing London.

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The North West (down four points to 44%) and the West Midlands (up nine points to 39%) were the only other regions to be at or above the UK average.

Wales and the East Midlands were the only regions to register declines.

Industry sector performance was mixed during January with confidence among manufacturers increasing by three points to 43%, reaching its highest level for three months due to an easing of supply chain pressures.

Retail confidence also rose, up one point to 44%, while confidence among firms in IT and communications remains particularly strong at 72%.

The impact of the Omicron variant over the festive period meant the service sector extended its recent run of modest decreases in January, dropping one point to 38%. Positively, hospitality has recovered some of December’s decline, rising from 6% to 38%.

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“January’s survey shows a continued resilience with minimal fluctuation as economic optimism remains at a historically strong level,” Hann-Ju Ho, senior economist at Lloyds Bank Commercial Banking, said.

“A larger decline in confidence was potentially prevented by the reduction in COVID infection rates from early January and the prospects of the easing of restrictions across the UK.

“However, businesses remain cautious about the pandemic and are facing challenges from rising cost pressures although many are raising their prices in response.“

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