British business confidence has fallen to its lowest level since last summer, data showed on Tuesday, as companies face growing uncertainty about potential trade barriers and slowing economic growth. The drop comes at a crucial moment for the UK economy, which has been struggling to gain momentum after narrowly avoiding a recession last year.
The monthly Lloyds Bank Business Barometer fell to 42 in April from 45 in March, marking the third consecutive monthly decline. This represents the weakest sentiment reading since August 2023, when businesses were still grappling with persistent inflation concerns.
“Companies are increasingly nervous about what lies ahead,” said Hann-Ju Ho, senior economist at Lloyds Bank Commercial Banking. “The combination of uncertain trading conditions, potential new tariffs, and signs of sluggish consumer spending has created a perfect storm of worry for business leaders across sectors.”
The survey revealed particularly sharp declines in confidence among manufacturing firms, many of which rely heavily on international trade. These businesses expressed specific concerns about the impact of potential new tariffs between Britain and the European Union, which remains the UK’s largest trading partner despite Brexit.
UK manufacturers have already faced significant challenges adapting to post-Brexit trading arrangements. The prospect of additional trade barriers has intensified worries about future growth. One manufacturing executive who participated in the survey noted, “We’ve just started to find our footing with the current rules, and now we’re facing more uncertainty. It makes long-term planning almost impossible.”
The drop in confidence comes despite some positive economic indicators. UK inflation fell to 3.2% in March, moving closer to the Bank of England’s 2% target. This has raised hopes of possible interest rate cuts later this year, which could potentially ease financial pressures on businesses.
However, the prospect of relief from lower borrowing costs hasn’t been enough to outweigh broader economic concerns. The International Monetary Fund recently downgraded its forecast for UK economic growth in 2024 to just 0.5%, among the weakest in the G7 group of major economies.
The services sector, which makes up about 80% of the UK economy, also reported waning optimism. Retail businesses pointed to persistent challenges in consumer spending, with many households still feeling the squeeze from higher living costs despite the gradual easing of inflation.
“We’re seeing customers being much more cautious with their spending,” said Emma Thompson, who runs an independent retail business in Manchester. “People are prioritizing essentials and thinking twice about discretionary purchases. That caution is filtering through to our planning and hiring decisions.”
Employment intentions among UK firms have also weakened, according to the Lloyds survey. The percentage of businesses planning to increase their workforce in the next year fell to 28% in April from 32% in March. This suggests the UK’s relatively robust labor market could face growing pressures in the months ahead.
Regional differences in business sentiment have become more pronounced. Confidence remained relatively stronger in London and the Southeast, where the service economy dominates, while manufacturing-heavy regions in the Midlands and North reported steeper declines in optimism.
The UK government has recognized these challenges and recently announced measures aimed at supporting business growth. Last month’s Budget included increased investment allowances and infrastructure spending designed to boost productivity. However, many business leaders believe more targeted support may be needed if economic conditions continue to deteriorate.
“The government needs to provide clarity on future trading arrangements and consider additional support for businesses facing international competition,” said Richard Morrison, policy director at the British Chambers of Commerce. “Uncertainty is the enemy of investment, and right now there’s far too much of it.”
Financial markets are closely watching business confidence indicators for signals about the broader economic outlook. The Bank of England’s Monetary Policy Committee is due to meet next week, with investors increasingly betting on interest rate cuts beginning in the summer months to support economic
