LONDON--U.K. business confidence is picking up, but concerns over a
lack of domestic demand and the impact of the still ongoing euro-zone
debt crisis are weighing on appetite to invest, which could prove
costly in the long run, a survey showed Tuesday.
Lloyds Banking Group's twice-yearly Britain in Business report shows
that business confidence has risen to a balance of +12 from +8 in the
previous survey in January, but firms remain cautious over the
domestic market in the U.K. and any lasting implications from the
still developing fiscal problems in the euro zone.
Both these key issues are the main reasons firms are still reluctant
to commit to any major financial investments.
The balance is calculated by subtracting the number of firms that have
a negative outlook from those with a positive one.
"It is encouraging, after a tough first half, to see that small and
medium sized firms are exhibiting a lift in confidence and that they
expect to see improved sales and orders over the next six months,"
said David Oldfield, Managing Director, Commercial, Lloyds Banking
Group.
"Firms continue to see weaker U.K. demand as the main threat to their
businesses, and so it is crucial that they improve their
competitiveness on the international stage. However, given that U.K.
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."
Demand from U.K. consumers has been weak in recent years as a
double-dip recession has hit hard and rocketing inflation combined
with meager wage growth has weighed heavily on spending power.
A speedy retreat in inflation and a mild improvement in salary growth
has meant consumers' money is beginning to go further each month, but
concerns over job security and the likelihood of a third straight
quarter of gross domestic product contraction mean their appetite and
ability to spend are still weak.
The scepter of the euro-zone debt crisis is also a major issue for the U.K.
The euro area accounts for almost half of the U.K.'s exports, which is
hurting the U.K.'s business community. While firms have been making
some inroads into other export markets, there remains a large hole in
orders, sales and profits. That is making companies less keen to
invest heavily amid growing uncertainty over a recovery both in Europe
and the U.K., which are closely tied and painfully slow.
"As we continue to monitor activity in the euro zone, businesses
should also concentrate their efforts on providing services to the
developing economies," said Trevor Williams, chief economist for
Lloyds Bank Wholesale Markets, adding that as inflation continues to
ease "businesses are now in an ideal position to review their pricing
strategy as their profit margins feel less cost pressure".
Write to Ilona Billington at ilona.billington@dowjones.com
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(END) Dow Jones Newswires
July 23, 2012 19:15 ET (23:15 GMT)
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