UK business confidence fell by three percentage points to -7% in January, reflecting renewed concerns over the coronavirus pandemic, according to the latest data from the Lloyds Bank Business Barometer.
Although confidence is at its second highest level since May 2020, the drop in January suggest concerns over the new COVID-19 variant in the UK has impacted previous optimism around the rollout of coronavirus vaccines.
January’s dip in confidence was built on a two percentage point fall in trading prospects to -5% and a four point drop in optimism regarding the wider economy — down to -9%.
Employment prospects for the next year remained negative with a two percentage point drop to -12%, as 33% of firms said they anticipate a smaller workforce. However, 21% of firms said they expecting to increase staff in 2021.
New protocols introduced due to the Brexit deal agreed between the UK and EU on Christmas Eve led to 6% of businesses reporting serious disruptions leading to significant supply chain delays or higher costs to their business.
A further 16% experienced slight, but manageable, delays while 18% felt no impact, but anticipate disruption in the future.
Under the terms of the deal, trade between Britain and the European Union remains free of tariffs and quotas but a new customs border means new paperwork and checks which have contributed to the rise in supplier delivery times and export disruption.
Confidence in the manufacturing sector slipped by nine points to ‑9%, services fell by four points to -9% and retail by five points to 6%, reflecting Brexit disruptions and lockdown woes.
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Flash estimates for the purchasing managers’ index (PMI) survey for Britain’s manufacturing and services sectors — a bellwether survey on the state of the UK economy — showed that Brexit disruption to supply chains and exports is adding to the strain on the economy on top of the impact of the coronavirus pandemic.
Supplier delivery times for UK factories rose the most among the six “flash” PMI surveys published by IHS Markit last week for France, Germany, Japan, Australia, the US, and the UK.
However, confidence levels in the construction sector improved for a second month, rising four points to -1%.
Sales have been hit by COVID-19 restrictions, with more than half (52%) of firms reporting lower sales as a direct result of lockdown measures and 10% stating they were unable to operate or were temporarily closed.
Vaccine hopes drove some optimism for trading prospects, with 54% saying that the rollout has improved confidence. Only 16%, however, expect their sales in 2021 or output to return to or surpass levels prior to the pandemic, while 38% see improving sales but expect sales to fall short of pre-COVID-19 levels for this year.
Nearly a quarter (23%) think that their business will continue to struggle despite the vaccine rollout.
Hann-Ju Ho, senior economist, Lloyds Bank Commercial Banking, said: “It has been a challenging start to the New Year for UK businesses adapting to a third national lockdown alongside the new EU trade arrangement taking effect.
“Nevertheless, while confidence remains below average, it is encouraging that business sentiment is still the second highest since the low of May 2020. Overall, the vaccine rollout programme has lifted confidence and that will hopefully buoy business optimism in the coming months.”
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