Lloyds: South East business confidence dips as omicron impact looms

South East business confidence fell five points during December to 29%, according to the latest Business Barometer from Lloyds Bank Commercial Banking.

Companies in the region reported higher confidence in their own business prospects month-on-month, up five points at 36%. When taken alongside their optimism in the economy, down 15 points to 22%, this gives a headline confidence reading of 29%. 

The Business Barometer, which questions 1,200 businesses monthly, provides early signals about UK economic trends both regionally and nationwide. 

The survey captured responses between 26th November and 10th December. The first two cases of Omicron in the UK were confirmed on 27th November and nations began announcing the reintroduction of restrictions in the week commencing 6th December.

A net balance of 16% of businesses in the South East expect to increase staff levels over the next year, down seven points on last month.

Overall UK business confidence was unchanged from November’s reading at 40%. While confidence remained above the long-term average (28%), during the second week of sampling when the Omicron variant emerged, confidence fell to 32%.

Despite potential challenges from the new Covid-19 variant on the horizon, firms remained positive about their future trading prospects, up four points month-on-month to 43%. The net balance of businesses planning to create new jobs also increased by three points to 33%. Optimism in the economy overall remained positive at 38%, down just three points on November’s result.

Every UK nation and region maintained a positive overall confidence reading in the December barometer, with four reporting a higher reading than last month. The North East (up 13 points to 58%), North West (up 14 points to 48%), Yorkshire and Humber (up four points to 35%) and East of England (up 12 points to 50%) all had stronger confidence readings month-on-month, with the North East and London (57%) the most optimistic overall.

Paul Evans, regional director for the South East at Lloyds Bank Commercial Banking, said: 

“It’s clear that there is a feeling of uncertainty among some South East businesses as we reach the end of another challenging year. Those in the tourism and hospitality sectors, in particular, will be hoping that the latest restrictions to deal with the Omicron variant are relatively short-lived."

“Though we head into 2022 not knowing what the year holds in store, we will be firmly by the side of South East businesses to help them remain resilient and seize new opportunities to grow.” 

In the industry sectors, construction recovered to 39% from November’s seven-month low of 28%, following a minor easing in supply-chain disruptions. Despite a slight fall in confidence in manufacturing to 40%, trading prospects in the sector have remained higher than the whole economy throughout this year.

There were also small declines for retail (43%) and services (39%) ahead of the festive period. There have been some marked differences in these sectors in recent months, with notable strengths in the professional services sector (including finance) and in IT/communications. However, the current three-month average sentiment among hospitality firms is at its lowest level (24%) since the first quarter of the year (4%). This has been fuelled by a significant monthly drop of 48 points to 6% between November and December.

Hann-Ju Ho, senior economist for Lloyds Bank Commercial Banking, said: 

“It is a challenging end to 2021 as businesses are now having to adapt to the new Omicron variant and resultant restrictions across the UK. Nevertheless, business confidence remains resilient and above the long-term average due to a rise in trading prospects, while pay and price expectations continue to be elevated."

“Businesses face into a number of headwinds and challenging trading conditions, including higher interest rates, as we move into 2022, but many remain resilient and hopeful that acute downside risks are not realised.”