SME Confidence edges up

UK businesses are regaining some confidence despite concerns about the eurozone crisis and slow UK growth.

However, firms risk losing out to global competitors if they fail to invest for future development, according to the latest Business in Britain report from Lloyds TSB Commercial.

The twice-yearly report, which canvasses the views of 1,800 UK businesses, shows that confidence has edged up since January despite continuing tough economic challenges.

However, confidence is still not back to levels witnessed in the preceding two years and some firms are holding back from making crucial decisions about their future as a result.

The overall confidence balance is the average of the individual net balances, for sales (19%), orders (20%) and profits (-2%). The current overall business confidence balance is 12, a four-point increase on the balance of eight recorded in January. However, while confidence among businesses has improved since January, the majority of UK businesses are still keeping investment on hold.

David Oldfield, commercial managing director for Lloyds Banking Group, said: “If firms continue to take advantage of profitable opportunities that will maximise their growth potential, we have reasons to be hopeful for the future.”

One in five businesses (20%) believe they will need to cut investment before the end of the year, while nearly half of businesses (47%) state that their investment will stay the same. Only a fifth (18%) plan an increase. The resulting negative balance of -2% is an improvement on January, but shows that businesses are still cautious about committing to investment spending, which could be to the detriment of UK competitiveness.

Expectations for total sales and orders in the next six months have both improved, after falling to their lowest levels in two-and-a-half years in the last survey in January.

More than a third of businesses (34%) said that they expect their orders will increase during the next six months, compared to 14% that think their orders will fall.

Two fifths of businesses stated that they think sales will increase in the next six months, while more than a fifth (21%) expect a decline.

When asked what the greatest threat to their business would be during the next six months, nearly half (49%) of businesses cited weaker UK demand, compared to 60% when asked in the last survey in January.

David continued: “Firms continue to see weaker UK demand as the main threat to their businesses, so it is crucial that they improve their competitiveness on the international stage.

“However, given that UK businesses have not been increasing their investment levels since the drastic cuts at the beginning of the financial crisis, they should be bold and do so now, especially if they want to improve their competitive edge in demanding export markets. Our job is to work closely with businesses to help them take advantage of opportunities for growth.”