BUSINESS CONFIDENCE AT HIGHEST LEVEL SINCE 1997
(2 August 2006)

A significant upturn in sales and orders in the first half of the year has boosted UK firms’ optimism for future profitability to its highest level in nine years, according to the ‘Business in Britain’ report from Lloyds TSB Corporate Markets. The biannual survey of over 2,200 UK companies shows that 24 per cent more firms saw sales rise rather than fall since January – a dramatic jump from just 8 per cent six months ago. In addition, the balance of firms reporting an increase in orders has risen from 13 per cent to 29 per cent in the same period.

Encouragingly, firms have successfully translated this rise in trade into increased profits. Thirty-six per cent of companies reported stronger profits, while 31 per cent reported weaker profits. This represents a positive balance of 5 per cent, which is not only a significant improvement on the previous balance of -4 per cent but is also the first time in 18 months that the balance has been positive rather than negative.

As a result, the survey’s unique confidence index for expectations for sales, orders and profitability is at its highest level since 1997, showing confidence in sustainable growth is buoyant. What’s more, despite increased fuel and commodity costs, firms have been able to maintain prices by successfully harnessing greater operating efficiencies to protect margins. In addition, 17 per cent more firms were able to raise prices, rather than cut them, in the first half of the year.

Diana Brightmore-Armour, Corporate Banking director at Lloyds TSB Corporate Markets, said: “The rise in raw material costs and fuel prices has been offset by a resurgence in domestic and global demand that has allowed firms to boost sales and orders. The knock-on effect has been a welcome boost to confidence that has led to increased capital expenditure and recruitment.”

Levels of investment and recruitment have rebounded since last year. Across the UK, 32 per cent of firms increased capital expenditure and 27 per cent took on new staff during the first half of the year. The sustained growth in world trade over the last two years has also benefited UK exporters. The balance of firms reporting increased exports to Europe has more than doubled in the last year – rising from 8 per cent in July 2005 to 17 per cent this July. Likewise, exports to non-European countries have also risen, from 7 per cent in July 2005 to 17 per cent now.

Diana Brightmore-Armour continued: “The export of UK services has been a particular success story in the first half of the year, with firms selling legal, accountancy, banking and brokerage services leading the charge. The balance of business services firms reporting an increase in sales rose 40 per cent since the start of the year – a definite shot in the arm for the UK economy - and reflects last year’s £53bn surplus on trade services and net investment income.

“This survey shows that most UK firms believe conditions will continue to be favourable, which suggests the second half of the year should see British businesses continue to thrive.”