Business Confidence is Booming: At highest level since 2017

Published by Rodney Sutton on 6 September 2021

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Business confidence grew by 6 points in August, the highest level since 2017, according to Lloyds Bank August Business Barometer.

Most encouraging is the fact that this increase in confidence is reflected across the majority of the UK where 9/12 of the regions showed increased business confidence and only 3 regions showing a small decline.

The most significant of the 3 less confident areas is the West Midlands where it could be said that the motor trade is experiencing challenges particularly on the supply of semiconductors, which continues to be constricted.

Secondly, Yorkshire and the Humber also showed a small decline in confidence which could potentially be explained by the hiatus surrounding logistics and freight. Northern Ireland, although showing a small increase in business confidence, lags behind the rest of the UK possibly due to the continuing challenges surrounding trade following the Northern Ireland Brexit agreement.

Retail and hospitality

The relaxing of the COVID-19 lockdown restrictions and social distancing along with the continued success of the vaccine rollout has boosted personal sentiment. This has flowed into an increase in consumer spending leading to improvement in the services sector particularly in high street retail and hotel and leisure sectors. The service sector has increased by 8 points to 36% in the latest review which is the highest level since January 2018 and is mainly due to a relaxation of restrictions.

Manufacturing and construction

Manufacturing and construction continue to lead the UK economic revival notwithstanding the constraints around supply chain and labour shortages. These sectors are also showing the highest levels of business confidence at 40%, which is mainly due to the fact that both sectors have continued operating at near-normal levels through most of the pandemic except for a brief period at the beginning of the lockdown back in March and April 2020.

Supply chain and labour constraints

Supply chain and labour continue to be fundamental constraints across all sectors with raw material and labour costs skyrocketing due to many people seeking more stable jobs in different sectors outside hospitality and leisure, seriously affecting hotels and restaurants.

Driver shortages are affecting the distribution of goods across the UK caused by an ageing workforce, many EU drivers not returning to UK work, increasing costs and time taken to train new drivers. This is not helped by the haulage industry working on an already low margin.

Freight charges have increased in stellar proportions, to some extent caused by the Suez blockage earlier this year leading to a shortage of containers.

Shortages of basic raw materials in the car industry, shortages of basic building materials including cement and basic lumber products in the construction industry is not only delaying housing projects but has meant that input prices across the board have escalated so much and so quickly, that businesses are reassessing prices and customers are accepting the increases as the inflation phenomenon has become universally accepted across the economy. Indeed, inflation is expected to reach 4% by end of 2021.

Inflation

The key question remains whether the rising UK inflation rate is a temporary or short term ailment as predicted by the Bank of England, who expect inflation to return to the expected 2% level by the end of 2023.

Or is this a chronic and more long-lasting condition that can only be stemmed by raising interest rates to curb inflationary pressure, thereby raising the pressure of the government to reduce its debt burden by raising taxes?

Both remedies will have the effect of slowing economic growth via reducing consumer confidence and spending, resulting in fewer business profits and ultimately lower taxes flowing into government.

Certainly, a remedy available to those in power could be to encourage the fiscal authority to accept a slightly overheated economy and higher than preferred levels of inflation so long as the UK economy continues to grow at rates well-exceeding inflation. This is a view that may not be the preferred option that could be taken by the Bank of England.

Join the Kent Manufacturing Forum

If you are a business that is feeling the effects of the current supply chain difficulties and would like to hear the views and experiences of fellow business owners, please feel free to join a virtual discussion of the Kent Manufacturing Forum on 14 October 2021 at 9am. To join our discussion, please contact us.

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