Business confidence rises as economic optimism increases

Business confidence rose six points to 47% in October as economic optimism and firms' own trading outlook improved, according to the latest Lloyds Business Barometer. Business sentiment is higher than at the start of the year with firms referencing strong demand, while cost pressures continue to present a challenge.

Economic optimism

Optimism in the wider economy rose nine points to 40%, compared to a 12-month average of 37%. Of those surveyed, 59% said they were optimistic in the wider economy (up seven points from September), while those who felt pessimistic decreased two points to 19%. The drivers of the increase, as detailed in the survey responses, included stronger customer demand, better economic news, and improving financial conditions.

Trading outlook

Businesses' own trading outlook increased five points to 55%, compared to a 12-month average of 56%. Nearly two thirds of firms (63% up six points from September) expect an increase in activity over the year ahead, while those expecting a decrease in activity rose by one point to 8%. Among firms expecting stronger activity, the main drivers were stronger customer demand, increased investment in technology and improved supply chain conditions.

Growth opportunities

Looking ahead to the next six months, 43% of firms said their biggest growth opportunity was the introduction of new technology, such as AI, automation and digitalisation, up nine points from last month, and up 17 points since 2023.

Domestic vs International

Confidence between businesses that trade internationally and domestic-only operators widened. Businesses that trade internationally rose by nine points to 58%, while confidence among domestic-only businesses rose one point to 33%. Nearly half (45%) of those with international operations cited investment in technology as a driver for growth, while three-quarters (75%) of domestic firms cited local customer demand.

Turnover size

Business confidence among smaller firms with a turnover below £5m increased eight points to 47%. These firms saw an increase in both economic optimism and trading outlook, driven by stronger customer demand and better economic news. For larger businesses with a turnover of £25m-£100m, business confidence fell by 20 points to 55%. These firms saw a decrease in both economic optimism and trading outlook, driven by rising cost pressures, global uncertainty and general inflation.

Pricing insights

The number of firms expecting to raise prices in the next 12 months rose for the second consecutive month by three points to 55%. Cost pressures were the main factor behind firms' expectations for higher prices, as businesses weigh passing on rising costs against maintaining a competitive advantage.

Sector insights

The Services sector saw an increase of 17 points to 52%, compared to a 12-month average of 45%. This was driven by stronger customer demand, better economic news and improving cost pressures. Manufacturing firms increased 12 points to 48%, compared to a 12-month average of 45%, which was driven by improved supply chain, industry specific improvements and economic conditions.

Business confidence among construction firms decreased two points to 45%, compared with a 12-month average of 50%, this was driven by rising cost pressures, global uncertainty and general inflation. Retail firms fell 12 points to 39%, compared to a 12-month average of 49%, which was driven by rising cost pressures, global uncertainty and general inflation.

Regional insights

Confidence improved across nine of the UK's 12 regions and nations in October. The East of England was the most confident region, rising 27 points to 63%, followed by the North East at 56%, while Wales saw the largest monthly rebound, increasing 38 points to 54%.