The power of confidence

By: Trevor Williams | Date: 10-04-2014

Tagged as: ArticleStrategyGrowthInvestmentPlanning

 

With business confidence increasing, Lloyds Bank Chief Economist TREVOR WILLIAMS highlights an environment ripe for growth.

With business confidence increasing, Lloyds Bank Chief Economist TREVOR WILLIAMS highlights an environment ripe for growth. 

Following a steady rise in business and consumer confidence in the UK over the course of 2013, in January Lloyds Bank’s biannual Business in Britain survey recorded its fourth consecutive increase in business confidence. Based on the average of the net balances for expected sales, profits and orders in the coming six months, this marked a rise in the confidence index to 45%, a significant uplift from the 30% recorded in the previous survey in July 2013. This falls just short of the all-time survey high of 46% recorded in January 1994.

What this shows is that businesses are feeling increasingly confident in their own prospects, as well as those of the UK economy overall. The fact that businesses are anticipating increases in sales, orders and profits is helping to further embed the recovery. As a consequence of this optimism we would expect to see a parallel rise in capital expenditure as ambitious and proactive businesses invest for growth.

One of the pillars supporting that drive to invest in order to maximise the opportunities of a buoyant economy is the historically low interest rate environment that currently persists in the UK. That makes the cost of borrowing relatively low, and bank finance an attractive option for many businesses. Despite concerns around what the fall in the unemployment rate towards 7% will mean for the Bank of England’s forward guidance policy, Governor Mark Carney has indicated that interest rates will be reviewed against a broad set of economic indicators to ensure that the recovery is assured before policy is tightened. So interest rate rises, when they do come, will be well signalled by the Bank of England and not suddenly hiked. That, in itself, should provide a boost to the confidence of businesses seeking funds for growth.

In addition, the general economic backdrop appears benign, with low global commodity prices helping to get, and likely keep, UK inflation down at the Bank of England’s 2% target (hit in December 2013 for the first time since November 2009). If we consider the global picture, that too is an improving one - despite recent issues in emerging economies as the Fed tapers - with the US showing strong growth and the Euro area economies exhibiting recovery, albeit modest. In January, the IMF revised up its growth forecast for a range of countries, including the UK and US and the global economy as whole.

What we have is an economy in recovery, and one that appears to be increasingly resilient. That will help businesses in an environment of affordable finance, to optimise their ambitions and target sustainable expansion plans. A virtuous circle of increasing business confidence, increasing investment and increasing growth, seems to have finally arrived.

Find out more

2014 - The year ahead: In this video, Trevor Williams outlines the major economic themes facing businesses in 2014.

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