Posted:11-August-2009
Business confidence shows some signs of revival in Lloyds TSB's survey
Lloyds TSB’s half yearly Business in Britain survey shows:
- Business confidence is rising somewhat from recent record lows
- Firms are hopeful about sales and orders, but profits are still under pressure
- Investment, recruitment and prices remain constrained
- Strength and shape of the recovery remains uncertain
British businesses are showing signs of rekindled confidence in their prospects for the rest of the year, but profits will remain under pressure for some time to come, according to the latest Business in Britain survey from Lloyds TSB Commercial.
The report charts the performance of more than 2,500 UK firms and their views on prospects for the coming year. It shows that firms are hopeful of an increase in sales and orders by the end of 2009 but indicates that, without the ability to raise prices, profits will continue to fall for many. In addition, the survey highlights that investment and recruitment plans are still being scaled back.
These signs of greater confidence amongst British firms are rooted on hopes for a boost in sales and orders by the end of the year. The survey’s business confidence index1, which tracks firms’ expectations for sales orders and profits over the coming six months, has risen to a balance2 of -3 per cent, from the record low of -32 per cent, six months ago.
The balance of firms expecting an upturn in sales has risen to +1 per cent, with 31 per cent anticipating a rise and 30 per cent braced for a fall. This compares to a balance of -28 per cent in the survey six months ago, when only 20 per cent expected a rise and 48 per cent believed there would be a fall.
A similar picture emerges for orders. The overall balance of firms expecting an increase in the next six months has risen to +6 per cent (27 per cent expecting orders to climb and 21 per cent expecting a fall). At the time of the last survey, by way of contrast, the order book balance was -25 per cent, with only 17 per cent hopeful of a rise and 42 per cent resigned to a downturn.
Despite the fresh hopes for sales and orders, profits are likely to remain under real pressure for most firms. Although the balance of firms expecting rising profits has improved, from a low of -42 per cent in the last survey, it is still firmly in negative territory at -16 per cent. A fifth (21 per cent) expect profits to climb, while almost two fifths (37 per cent) believe they will tumble. Two fifths (39 per cent) think profits will remain stable.
A third (30 per cent) of companies reported cash-flow problems – marginally higher than the level recorded in the survey six months ago (29 per cent), with late payments by customers and weak demand remaining the main causes. These constraints on profitability and liquidity will take an inevitable toll on firms’ investment plans for the rest of the year. While one in ten businesses (13 per cent) expects to increase investment over the next six months, a third (33 per cent) believe they will need to make cuts, resulting in a balance of – 20 per cent. This is a slight improvement on the balance of -35 per cent in the last survey, but is also still firmly negative.
There is some improvement in the number of firms expecting to increase staff levels. One in ten firms (11 per cent) plans to recruit during the last six months of 2009, while a fifth (20 per cent) plan to reduce numbers, which is a balance of -9 per cent. Although this is a clear improvement on the balance of -25 per cent in the last survey, it is still a negative balance, meaning that firms are continuing to reduce numbers, albeit at a slower pace.
With consumer and business demand still in the doldrums, firms have little scope, at the moment, to increase prices. Just 15 per cent of firms expect to raise prices over the next six months, while 16 per cent are contemplating cuts – a balance of -1 per cent. Most firms (65 per cent) say they will keep prices on hold.
The picture is better for exports than it is for the domestic market. A balance of 13 per cent expect overseas orders to increase over the next six months – 33 per cent say exports will rise, 20 per cent believe they will fall and 41 per cent don’t envisage a change.
Business confidence improved in all sectors, with business and other services, wholesale distribution and manufacturing reporting confidence levels above the all-sector average.
John Maltby, managing director, Lloyds TSB Commercial said: “A major factor in the dramatic fall into recession has been plummeting business confidence - and restored confidence is the key to any recovery. So this evidence that firms are regaining faith in their business prospects is good news.
“But the survey indicates a levelling off in the downturn, rather than a return to strong growth. For the time being, profits will remain under pressure and investment will be on the backburner. And that means businesses will need support in order to ensure the momentum of any recovery.
“The somewhat more positive outlook, with growth projected in export markets, means that there are opportunities and we hope that British firms can seize the initiative.
“Banks will play a crucial part in helping firms face this challenge. Throughout these challenging times, Lloyds TSB remains dedicated to providing solid financial advice and to supporting every reasonable request for financial support. We’re committed to helping UK businesses, not only to survive the recession, but to prosper as the economy recovers.”
