UK Business confidence falls for the third straight month

The results point to potential flat growth in the second quarter

The latest Lloyds Business Barometer survey shows that companies’ optimism regarding economic prospects has fallen for the third straight month. The net balance declined to 1% in March, from 3% in February and 9% in January. Forty-five percent of companies were more optimistic about economic prospects (up from 39% in the previous month), but 44% were less optimistic (up from 36%).
We estimate that the net balance for economic prospects has historically provided a 3-4 month lead of GDP and therefore gives a more timely steer of economic growth prospects than other surveys such as the PMI. Chart 1 shows that latest results from the Business Barometer seems to be consistent with flat quarterly growth in the second quarter, the first official estimate of which will not be available until the end of July.

Manufacturing confidence fell, but remains higher than other sectors

A broad sectoral breakdown of the results shows that optimism regarding economic prospects in the manufacturing sector has fallen, but remains stronger than services and retail/distribution – see Chart 2. The net balance for manufacturing fell to 19% in the three months to March from 24% in February. In services, the balance edged down slightly to 10% from 12%, while it has fallen to a near 2-year low of 4% from 12% in the retail/distribution sector.

Confidence weakest in the North and larger companies

From a broad regional perspective, optimism regarding economic prospects was the weakest in the North, with the net balance falling to 1% in the three months to March from 11% in February – see Chart 3. The balance also fell in the Midlands to 9% from 18% and the South to 3% from 11%.
In terms of the results by company turnover, it appears that medium-sized firms with turnover £16-25m were the most optimistic about economic prospects. The net balance for companies in this turnover bracket rose to 26% in the three months to March from 13% in February. For companies with turnover of £1-15m, the net balance fell to 4% from 13%. Confidence among large companies with turnover above £25m has been volatile in recent months and the net balance in March fell to a 2-year low of -15% from 10%.