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UK business confidence at nine-month high following COVID-19 vaccine breakthrough

Suban Abdulla
·4 min read
Coronavirus Covid-19 Protection and Vaccine. Doctor drawing up solution from vaccine bottle and filling syringe injection for patient vaccination in medical clinic, Coronavirus in background
Confidence increased across all industry sectors to its highest levels seen since the pandemic began in March. Photo: Getty

The coronavirus vaccine breakthrough saw the UK’s business confidence climb to a nine-month high, according to the Lloyds Bank Business Barometer.

Overall business confidence increased by seventeen percentage points to -4% in December, the sharpest rise for more than four years — although it continues to sit in negative sentiment and remains well below the long-term average of 28%.

December’s jump was mainly driven by a sharp rise in optimism about the wider economy.

Economic optimism went up by twenty-three percentage points to -5%, with trading prospects rising by eleven points to -3% and employment prospects by ten points to -10%.

Confidence increased across all industry sectors to its highest levels seen since the pandemic began in March.

Manufacturing reported a strong rebound in December despite looming uncertainty during the survey period about the UK’s new trading arrangements with the EU, surging by twenty-five points, from -25% to 0%.

Growth in confidence for construction rose by eighteen points to -5%, this was followed by services, which jumped by sixteen points to -5%.

The retail sector reported an eleven point lift in confidence to -1%, but despite the good figures, entering the holiday trading period, confidence in retail, as in other sectors, remains below the long-term average.

READ MORE: Value of UK construction contract awards hits £4.9bn in November

Sector confidence reaches highest levels since the health crisis began. Chart: Lloyds Bank Business Barometer
Sector confidence reaches highest levels since the health crisis began. Chart: Lloyds Bank Business Barometer

The Business Barometer survey calculates overall business confidence by averaging the views of 1,200 companies on their business prospects and optimism about the UK economy.

“The news of the vaccine progress has bolstered this month’s confidence figures, more than offsetting uncertainties around the UK’s new trading relationship with the EU,” Hann-Ju Ho, senior economist at Lloyds Bank, said.

He added: “While confidence remains below average and significant challenges lie ahead, it is heartening to conclude a challenging year with a notable improvement in business sentiment and with the positive momentum hopefully continuing into 2021.”

The coronavirus vaccine breakthrough also improved employment prospects, with confidence levels in this area moving to their least negative since the onset of COVID-19 in March.

The net balance of businesses expecting higher staffing levels in the year ahead increased by ten points to -10%, reflecting that 22% of firms (up from 18%) are predicting a higher headcount and 32% (down from 38%) anticipating overall job losses.

Meanwhile, the share of companies expecting to make no pay increase in the coming year fell marginally by one point to 32%. But, there were more notable dips in larger businesses reporting pay freezes, reflecting their relatively stronger trading and hiring prospects.

READ MORE: Christmas cancelled for London, South East, and East England with new COVID-19 Tier 4 restrictions

Regionally, for the first time since 2018 business confidence rose across all 12 regions, with the most significant jumps in Scotland, the South West and the West Midlands.

The most marked improvements were reported in Scotland — up twenty-nine points to -9%. This was followed by the South West, which saw an increase of twenty-two points to 5% and the West Midlands up twenty-two points to 4%. The latter two, along with the North East (4%) recorded the highest levels of confidence having moved into positive territory for the first time since March this year.

Other regions with above-average confidence were the East of England (-1%) and London (-2%), while Wales (-1%) remained above the UK average for a fifth consecutive month despite additional measures announced to tackle rising coronavirus infections.

Paul Gordon, managing director for SME and Mid Corporates at Lloyds Bank Commercial Banking, said: “It has been encouraging to see a clean sweep of regional confidence increases this month. Despite the regional restrictions across the UK, it is promising to see regions beginning to report above-average confidence figures.”

The survey carried out between 25 November and 10 December, during which the national lockdown in England was replaced by a tiering system, while high-level restrictions were also in place in other parts of the UK. It does not take into account any reaction to London and parts of South England moving into Tier 3 and Tier 4 restrictions.

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