Companies’ confidence rises in face of inflation

Businesses are increasingly confident that they can use high inflation to rebuild their margins, a survey has found.

Businesses are increasingly confident that they can use high inflation to rebuild their margins, a survey has found.

Confidence among firms has risen for the first time since the onset of the war in Ukraine, according to the monthly barometer by Lloyds Bank. It rose by five points on the index to reach 38 per cent, significantly higher than the long-term average of 28 per cent.

Six in ten of the 1,200 companies surveyed this month said that they planned to raise prices to protect profit margins in light of the rising cost of supplies. Only 16 per cent of businesses plan to increase workers’ pay by 4 per cent or more.

Inflation hit a 40-year high of 9 per cent in April and is expected to exceed 10 per cent by the autumn.

The number of companies reporting plans to recruit rose for the first time in three months, with 53 per cent planning to take on staff, up from 44 per cent in the previous month. Eight of the 12 UK regions showed greater optimism about their prospects — up one from April. The level of confidence was highest in London, the West Midlands and the northwest.

Confidence remained lower in consumer-facing sectors, with retail businesses reporting a below-average level of 27 per cent on the index. Concerns about the erosion of disposable incomes because of the cost of living has pushed confidence among retailers to the lowest level since March last year, when Covid restrictions were in place.

Martin Beck, chief economic adviser to the EY Item Club forecasting group, said that the economy still carried a degree of momentum despite the surge in inflation and global uncertainty caused by the war in Ukraine.

“Unemployment is close to a record low, households have accumulated £180 billion of unplanned savings during the pandemic and the chancellor’s package of support to households goes a long way to alleviating the concerns around higher energy prices for the most vulnerable. So while businesses aren’t lacking in things to worry about, there are factors at play which they can take heart from.”

Hann-Ju Ho, a senior economist at Lloyds Bank commercial banking, said that companies seemed to be able to rebuild some of their margins via price increases, but added that they were concerned at the rising cost of supplies and the potential for a slowdown in economic growth.