Business confidence in the United Kingdom declined in June amid ongoing concerns about inflation and cost pressures linked to the prolonged conflict in the Middle East, according to a survey released Tuesday. The index measuring sentiment among private-sector companies, compiled by Lloyds Bank, fell by three points to 44 percent, below the 12-month average of 47 percent. Economic optimism also dipped four points to 31 percent.
The survey highlights the impact of rising production costs, which Lloyds attributes largely to increased energy prices driven by instability in the Gulf region. The conflict, now in its fifth month, has contributed to volatile oil markets despite recent price declines. Brent crude, the international oil benchmark, has dropped below pre-conflict levels seen before the war’s outbreak in late February.
The manufacturing sector showed the sharpest decline in confidence, with optimism falling 10 points to 33 percent as industries heavily reliant on energy grapple with elevated expenses. Retailers also reported decreased confidence, down eight points to 45 percent. Despite persistent inflationary pressures, the report notes that some easing in energy prices may have begun to mitigate cost pressures.
Amanda Murphy, Lloyds Business and Commercial Banking chief executive, said that while global uncertainty and cost challenges persist, international firms appear more optimistic, citing signs of reduced supply chain disruptions and improving customer demand. The survey found that hiring intentions improved for the first time in three months. Among 1,200 firms polled, 55 percent plan to increase their workforce, while 14 percent intend to reduce it, marking a modest improvement in labor market sentiment.
Senior economist Hann-Ju Ho noted that uncertainty continues to affect sectors unevenly but suggested the data may indicate early signs of labor market stabilization after two years of weakening conditions. Supporting this view, recent figures from the Office for National Statistics (ONS) showed job vacancies falling to their lowest level in five years.
The wider economic environment remains challenging. GDP contracted 0.1 percent in April, according to ONS data, while the purchasing managers’ index for the private sector dropped to a 14-month low, reflecting subdued business activity.
Business confidence may also be influenced by domestic political developments. Earlier this month, Sir Keir Starmer resigned as prime minister, with Andy Burnham set to assume office by mid-July. Burnham's administration has yet to detail its tax and spending policies or announce key cabinet appointments, though Ed Miliband and Wes Streeting are considered potential candidates for chancellor. Burnham has indicated a preference for reducing VAT on hospitality and reforming the business rates system, signaling possible shifts in economic policy that businesses are monitoring closely.
Meanwhile, tensions in the Middle East escalated over the weekend as the United States and Iran exchanged strikes, accusing each other of violating ceasefire terms, adding to global uncertainty and its economic reverberations.