Business confidence fell to a four-month low in October, highlighting that Rachel Reeves’s tax-raising plans at the budget have shaken sentiment in the private sector, a survey showed.
The latest Lloyds Bank business barometer showed that confidence slipped by three points to 44 per cent in October. Greater pessimism among companies about the health of the UK economy and their own trading prospects drove sentiment lower over the last month.
The latest drop takes business optimism further away from the nine-year high that it reached in July and August, suggesting that the government has partially lost the confidence of companies as it revealed its tax-raising intentions for the budget this week and projected a downbeat picture of the economy. Lloyds carried out the survey between October 1 and 15.
Reeves, the chancellor, is expected to announce about £40 billion of fiscal tightening on Wednesday, mainly via increases to employers’ national insurance contributions (NICs), capital gains tax and an extension of the freeze on on income tax thresholds. However, she will offset this with an expected £20 billion increase in public investment spending.
Separate surveys have also shown that consumers and businesses have become more despondent in recent months. The GfK consumer confidence index fell to minus 21 this month, the lowest point since March, while the S&P Global purchasing managers’ index indicated that private sector activity slumped to an 11-month low, with experts blaming “gloomy government rhetoric”.
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Hann-Ju Ho, senior economist at Lloyds Commercial Banking, said: “Although overall business confidence dipped in October, it follows a sustained period of significant optimism, and business sentiment remains above historical levels.”
“Encouragingly, many businesses remain confident in their own trading prospects, and the increase in hiring intentions suggests more employers want to grow their workforce.”
Lloyds said that a net balance of 37 per cent companies intended to expand their workforce over the next year, indicating that hiring intentions remained strong, although the research was carried out before news emerged that the chancellor was set to announce a rise in employers’ NICs at the budget.
Economists have warned that a rise in employers’ NICs bills could result in them lowering workers’ salaries or scaling back recruitment to account for higher costs.
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Separate figures published on Monday from Adzuna, the job search site, showed that the number of vacancies in the UK economy rose by 0.4 per cent over the last month to 861,085. On an annual basis, vacancies declined by 16 per cent. Demand for staff was strongest in the trade and construction sector, Adzuna said.
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Andrew Hunter, co-founder of Adzuna, said: “Falling inflation and growing GDP offer more reasons for optimism in the jobs market than in recent months. In fact, an early snapshot of October shows that vacancies were up 3.23 per cent compared to the same period in September, driven by an increase in travel, retail and teaching roles.”
According to Lloyds, six in ten companies intend to raise prices over the coming year. Wage growth, Adzuna said, remained elevated at 5.1 per cent in September.
According to the Office for National Statistics, inflation fell faster than forecast in September to 1.7 per cent, causing speculation that the Bank of England will lower interest rates by 25 basis points at its November and December meetings from 5 per cent presently.
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