Business Confidence Falls as Iran Conflict Continues

Business confidence fell last month as firms grappled with stubborn inflation and cost pressures, and the conflict in the Middle East is now entering its fifth month, according to a survey published today.

An index of sentiment among private companies compiled by Lloyds Bank’s Business Barometer fell three points to 44 percent in June, leaving it below the 12-month average of 47 percent. Economic optimism also declined, dropping 4 points to 31 percent.

The lender said businesses are more concerned about rising production costs, a concern that may be related to higher energy prices caused by the Gulf conflict. Over the weekend the United States and Iran traded strikes, each accusing the other of violating the terms of the ceasefire agreement.

The decline in confidence was most pronounced among manufacturers, where optimism dropped 10 points to 33 percent, reflecting the sector’s tight energy use. Reading among retailers fell 8 points to 45 percent. Energy costs have been a major brake on SME growth for much of the past year, with small firms warning that they do not have the kind of price protection afforded to households.

Although inflation worries persist, oil prices have fallen sharply in recent weeks. The price of a barrel of Brent crude, the international benchmark, has fallen below levels seen before the conflict erupted at the end of February.

Amanda Murphy, chief executive of Lloyds Business and Commercial Banking, said: “While cost pressures and global uncertainty continue to weigh on business prospects, international firms are more confident, with many seeing signs of supply disruption easing and strengthening customer demand.”

There was better news about jobs. Lloyds said corporate hiring intentions rose for the first time in three months. About 55 percent of the 1,200 companies surveyed said they want to increase their workforce, against 14 percent who plan to reduce the number of people, a decrease of three points per month.

Hann-Ju Ho, senior economist at Lloyds Commercial Banking, said: “Overall, while some sectors are holding steady, the data suggest that uncertainty is still disproportionately affecting some parts of the economy more than others.”

Figures may show that the UK labor market is in the first stages of stabilization after two years of weakness. Data from the Office for National Statistics showed vacancies fell to their lowest level in five years.

Growth also took over from the war. GDP contracted by 0.1 per cent in April, the latest ONS figures show, and the closely watched purchasing managers’ index showed that private sector employment fell to a 14-month low.

Last month’s drop in confidence may be linked to recent political and policy uncertainty at Westminster, after Sir Keir Starmer resigned as prime minister earlier this month, paving the way for Andy Burnham to step into No.10 as soon as mid-July.

Mr Burnham has yet to finalize the tax and spending plans or name his chancellor. Ed Miliband and Wes Streeting are seen as potential candidates to replace Rachel Reeves in Number 11. Starmer’s potential successor has shown a preference for reducing VAT on the tourism industry and overhauling the corporate tax system.