business in britain - lloyds banking group · a survey of business opinion and trends 46th edition...

BUSINESS IN BRITAINA survey of business opinion and trends

46th Edition July 2015

CONTENTS

3 INTRODUCTION

4 RECENT TRENDS IN THE SME MARKET

10 THE SECTORAL PICTURE

13 THE REGIONAL PICTURE

15 ANALYSIS BY SIZE OF FIRM

OUR CONTRIBUTORS

Hann-Ju HoEconomic Research Financial Markets Lloyds Bank Commercial Banking

Tel: (020) 7158 1745Email: [email protected]

Jonathan ThomasEconomic Research Financial Markets Lloyds Bank Commercial Banking

Tel: (020) 7158 1750Email: [email protected]

BUSINESS IN BRITAIN REPORT A SURVEY OF OPINIONS AND TRENDS

2

mailto:[email protected]/

mailto:[email protected]

INTRODUCTION

Tim HintonManaging DirectorMid Markets & SME BankingLloyds Bank Commercial Banking

Tel: (020) 7522 6389

Welcome to the latest results from our twice-yearly Business in Britain survey, now in its twenty-third year. The survey offers valuable and timely insights into the recent performance and expectations of small and medium sized businesses up and down Britain and across all sectors of the economy.

Companies in our survey reported robust levels of economic activity in the past six months and this is anticipated to continue in the second half of the year. Overall business confidence remains near the post-recession high – a finding which is broadly replicated across industries, regions and firms of different sizes. Taken together, these results suggest that the economic upturn is enduring and maturing. Our survey also shows a further rise in the share of companies reporting recruitment difficulties, suggesting that slack in the labour market is closing.

A notable change compared with the last survey is the improvement in expected exports, particularly to Europe. Combined with positive investment spending trends, this should help the rebalancing of the UK economy.

I would like to thank all of the 1,500 companies that have taken the time to participate in the survey, helping to provide valuable insights on the UK economy. I wish you every success for the remainder of 2015 and beyond.

3


RECENT TRENDS IN THE SME MARKETSALES, INCOMING ORDERS AND EXPORTS REMAIN NEAR POST-RECESSION HIGHS

SALES, ORDERS AND EXPORT SALES OVER THE LAST SIX MONTHS

50

40

30

20

10

00

-10

-20

-30

-40

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

SalesTotal ordersSales and orders: % balance, up minus down

1

2

1. The net balance for overall sales in the past six months fell slightly by three points to 35%, but remains at a strong level. Just over half of companies (51%, down from 54%) indicated that sales had risen in the first half of the year, while 16% (unchanged) said that their turnover had fallen.

35%The net balance for overall sales in the past six months fell slightly from 38% to 35%.

2. The net balance for incoming new orders over the past six months was unchanged at 37%, which is near post-recession highs. Nearly half (48%, down from 49%) of firms indicated that demand had risen, while 11% (down from 12%) said that it had fallen.

37%The net balance for incoming orders was unchanged at 37%.

50

40

30

20

10

00

-10

-20

Export sales: % balance, up minus down EuropeTotal

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

1. The net balance for total exports over the past six months edged lower to 30% from 33% in the previous survey. Forty-four percent (down from 47%) of exporters reported stronger sales abroad, while 14% (unchanged) said export sales fell.

30%The net balance for total exports in the past six months fell slightly to 30%, from 33% in the last survey.

2. The net balance for exports to Europe, however, rose by 7 points to 18%, with 36% (up from 31%) of exporting firms reporting strong European sales and 18% (down from 20%) indicating weaker sales.

18%The net balance for exports to Europe, however, increased to 18% from 11%.


4

OPTIMISM ABOUT EXPECTED SALES AND ORDERS HAS REMAINED STEADY

SALES AND ORDERS OVER THE NEXT SIX MONTHS

The net balance for expected sales over the next six months edged up one point to 47%, with 55% of companies (down from 56%) anticipating stronger sales and 8% (down from 10%) expecting weaker sales.

The net balance for expected orders in the next six months fell by one point to 45%, with 52% of firms (down from 54%) expecting stronger demand and 7% (down from 8%) expecting weaker orders.

70

60

50

40

30

20

10

00

-10

-20

% respondents

Expected Sales: Down Expected Sales: Up Net Balance (Up–Down)

12M AGO 6M AGO LATEST

58% 46% 47%

47%The net balance for expected total sales over the next six months rose by one point to 47%.

70

60

50

40

30

20

10

00

-10

-20

% respondents


Expected Orders: Down Expected Orders: Up Net Balance (Up–Down)

56% 46% 45%

45%The net balance for expected business orders over the next six months fell by one point to 45%.


5

EXPORT PROSPECTS EXPECTED TO STRENGTHEN OVER THE NEXT SIX MONTHS

EXPORT SALES OVER THE NEXT SIX MONTHS

The net balance for overall anticipated global exports over the next six months increased by five points to 46%, reflecting a rise in the share of exporters reporting stronger shipments abroad to 54% from 51% and a fall in the percentage anticipating weaker sales to 8% from 10%.

The corresponding net balance for exports to Europe in the next six months also increased by eight points to 30%, with 43% (up from 36%) reporting higher European sales and 13% (down from 14%) expecting lower shipments.

70

60

50

40

30

20

10

00

-10

-20

% respondents


Expected Exports: Down Expected Exports: Up Net Balance (Up–Down)

51% 41% 46%

46%The net balance of anticipated global exports rose from 41% to 46%.

50

40

30

20

10

00

-10

-20

% respondents


37% 22% 30%

Expected Exports to Europe: Down

Expected Exports to Europe: Up

Net Balance (Up–Down)

30%The net balance of firms expecting higher exports to Europe rose by eight points to 30%.


6

HIRING AND INVESTMENT INTENTIONS REMAIN RELATIVELY STRONG

INVESTMENT AND EMPLOYMENT TRENDS

30

20

10

0

-10

-30

-20

-40

Future expectations: % balance, up minus down EmploymentInvestment

1995 1997 1999 2001 2003 2005 2007 2009 2011 20131996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2015

1. The net balance of companies planning to increase their staffing levels in the next six months fell marginally by 1 point to 19%. Thirty-one percent (up from 30%) of firms expect to raise their headcount, while 12% (up from 10%) anticipate a fall. The net balance is consistent with further rises in employment in the UK economy in the second half of the year.

19%The net balance for staffing levels over the next six months edged lower by 1 point to 19%.

2. The net balance for planned capital expenditure for the next six months improved, rising from 16% to 18%. Just under a third (30%) of companies – unchanged from the last survey – expect to increase investment spending, while 12% (down from 14%) anticipate a reduction. The net balance remains consistent with a recovery in investment spending in the wider economy.

18%The net balance for planned capital spending increased from 16% to 18%.

RECRUITMENT FRICTIONS AND CAPACITY TRENDS

55

50

45

40

35

25

30

20

15

10

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

full capacity (RHS)Recruitment di�culties (skilled) (LHS)% firms % firms50

45

40

35

30

25

2

1

1. The percentage of companies reporting difficulties in recruiting skilled workers in the past six months increased from 39% to 41%. This is the highest level for seven years, and suggests that the slack in the labour market is closing.

41%The share of businesses reporting difficulties in recruiting skilled workers in the past six months increased from 39% to 41%.

2. The share of businesses reporting that they are operating at full capacity rose to an all-time high of 47%, up from 46% in the previous survey. This may lead to an increase in underlying price pressures in the coming months.

47%The share of businesses reporting that they are operating at full capacity rose from 46% to 47%.


7

TRENDS IN PROFITS AND PRICES ARE STEADY

PRICES AND PROFITS: OVER THE NEXT SIX MONTHS

60

40

20

0

-10

-40

-20

-50

Future expectations: % balance, up minus down ProfitsPrices

1995 1997 1999 2001 2003 2005 2007 2009 2011 20131996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2015

50

30

10

-30

1. The net balance of companies expecting to raise their prices in the next six months was unchanged at 22%. Thirty percent of firms anticipate a rise in their prices, while 8% predict a decline – both unchanged from the previous survey.

22%The net balance of firms that anticipate raising their prices over the next six months was unchanged at 22%.

2. Nearly half of companies (47%, down from 49%) expect to see an improvement in their profits in the coming half year, while 11% (down from 13%) anticipate a fall. The resulting net balance of 36% is unchanged from the last survey.

36%The net balance for expected profits over the next six months held steady at 36%.

INTEREST RATE EXPECTATIONS

The net balance for interest rate expectations for the coming six months fell from 39% to 30%. Thirty-four percent of companies (down from 42%) anticipate higher interest rates, while 4% (up from 3%) foresee lower interest rates.

50

40

30

20

10

00

-10

% respondents


Expected InterestRates: Down

Expected InterestRates: Up

Net Balance (Up–Down)

35% 39% 30%

30%The net balance for interest rates in the next six months fell from 39% to 30%.


8

OVERALL BUSINESS CONFIDENCE REMAINS NEAR POST-RECESSION HIGHS

BUSINESS CONFIDENCE

Our measure of overall business confidence is an average of the net balances for expected sales, orders and profits over the next six months. This measure held steady at 43%, lower than the peak of 53% a year ago, but nevertheless it is still consistent with a robust expansion of activity.

60

40

30

20

10

00

-10

-20

-30

-40

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Average

index

50

43%The average of the net balances of expected sales, orders and profits was unchanged at 43%.

THE ECONOMIC DYNAMIC REMAINS POSITIVE, BUT RECRUITMENT DIFFICULTIES ARE RISING

Companies in our survey continue to report robust levels of economic activity anticipated for the next six months. Although overall business confidence has eased a little compared with the peak a year ago, it remains near the post-recession high. Expected export sales have improved compared with the last survey

six months ago, helped by better economic prospects in Europe. Profit, investment and hiring trends also remain positive. However, the share of companies reporting recruitment difficulties continues to rise and suggests that spare capacity in the labour market is closing.


9

THE SECTORAL PICTURECONSTRUCTION AND MANUFACTURING ORDERS RECOVER

SALES OVER THE LAST SIX MONTHS

60

50

40

30

20

10

00

% balance, up minus down Previous

Tota

l

Man

ufac

turin

g

Cons

truct

ion

Reta

il &

Who

lesa

le

Hosp

italit

y &

Leisu

re

Tran

spor

t &

Com

mun

icatio

ns

Busin

ess &

Ot

her S

ervic

es

Latest

The decline in the overall net balance for sales over the past six months was not replicated across all sectors. While retail & wholesale (down 4 percentage points to 31%), transport & communications (down 5 points to 34%) and business & other services (down 7 points to 34%) all fell back, hospitality and leisure

held firm at 43% while the manufacturing and construction sectors saw rises of 4 points to 38%, and 14 points to 50%, respectively. For manufacturing, this was the strongest reading since June 2007 while construction sales were at an all-time high.

ORDERS IN THE NEXT SIX MONTHS

60

55

50

45

40

35

30

% balance, up minus down

Tota

l

Man

ufac

turin

g

Cons

truct

ion

Reta

il &

Who

lesa

le

Hosp

italit

y &

Leisu

re

Tran

spor

t &

Com

mun

icatio

ns

Busin

ess &

Ot

her S

ervic

es

Previous Latest

The pattern of sentiment changes surrounding sales over the last six months is also evident in expectations about incoming orders for the remainder of the year. In particular, retail & wholesale, transport & communications and business & other services all foresee some softening, while manufacturing and construction, along with hospitality & leisure,

anticipate improvements. The construction sector recorded the sharpest increase, rising 8 points to 56%, after a 22-point drop in the previous survey. Manufacturing also saw a partial retracement. After slipping by 10 points in the January survey, the net balance rose by 5 points to 57%.


10

CAPITAL SPENDING INTENTIONS IN CONSTRUCTION RISE SHARPLY

PROFITS IN THE NEXT SIX MONTHS

50

40

30

20

10

0


Tota

l

Man

ufac

turin

g

Cons

truct

ion

Reta

il &

Who

lesa

le

Hosp

italit

y &

Leisu

re

Tran

spor

t &

Com

mun

icatio

ns

Busin

ess &

Ot

her S

ervic

es

Previous Latest

The net balance of firms that expect profits to rise in the next six months increased across all sectors, with the exception of transport & communications and business & other services where the indices fell by 9 and 4 points, to 32% and 34%, respectively. In both cases,

this was the second consecutive survey of decline and chimes with the anticipated easing in new business. Current sentiment is strongest in construction (up 7 points to 42%), retail & wholesale (up 5 points to 41%) and manufacturing (up 7 points to 40%).

CAPITAL SPENDING IN THE NEXT SIX MONTHS

35

25

20

15

10

5

0


Tota

l

Man

ufac

turin

g

Cons

truct

ion

Reta

il &

Who

lesa

le

Hosp

italit

y &

Leisu

re

Tran

spor

t &

Com

mun

icatio

ns

Busin

ess &

Ot

her S

ervic

es

30

Previous Latest

With the exception of retail & wholesale and transport & communications, all sectors reported a rise in the net balance of firms anticipating an increase in their capital outlays over the next six months. After a 24-point drop to 6% in the last survey, construction

rebounded strongly with an 18-point gain to 24%. Hospitality and leisure was the only other sector to record a double-digit improvement with a score of 30%, which is the highest reading since mid-1998, compared to 15% in the previous survey.


11

EMPLOYMENT INTENTIONS HAVE SOFTENED ACROSS MOST OF THE SERVICE SECTOR

EMPLOYMENT IN THE NEXT SIX MONTHS

35

25

20

15

10

5

0


Tota

l

Man

ufac

turin

g

Cons

truct

ion

Reta

il &

Who

lesa

le

Hosp

italit

y &

Leisu

re

Tran

spor

t &

Com

mun

icatio

ns

Busin

ess &

Ot

her S

ervic

es

30

Previous Latest

The net balance of survey participants seeking to increase headcount over the next six months rose in manufacturing, construction and hospitality and leisure, but declined elsewhere.

The sharpest fall took place in transport & communications, down from 24% to 15%, followed by retail & wholesale, down from 15% to 9%.

BUSINESS CONFIDENCE OVER THE NEXT SIX MONTHS

60

50

40

30

20

10

00


Tota

l

Man

ufac

turin

g

Cons

truct

ion

Reta

il &

Who

lesa

le

Hosp

italit

y &

Leisu

re

Tran

spor

t &

Com

mun

icatio

ns

Busin

ess &

Ot

her S

ervic

es

Previous Latest

The January 2015 survey saw the net balance for overall business confidence fall back from a record high of 53% to 43% as well as declines across all the sectors. While the aggregate balance has remained unchanged this time around, manufacturing, construction

and hospitality & leisure have all seen an improvement in the average of expected orders, profits and sales. More generally, all the sectoral outturns remain consistent with a solid pace of activity over the coming six months.


12

THE REGIONAL PICTURESENTIMENT ABOUT EXPECTED ORDERS AND SALES FALL SHARPLY IN WALES


60

50

40

30

20

10

00


Scot

land

York

shire

Previous Latest

W M

idla

nds

Glos

, Oxo

n &

S M

idla

nds

Sout

h W

est

Sout

h Ea

st

Lond

on

Tota

l

Wal

es

North

Wes

t

E M

idla

nds

& Ea

st

North

Eas

t

The January 2015 survey saw the net balance for expected orders fall across the whole of the UK. The sharpest decline was in the North East and four other regions including the South East and South West also recorded double-digit falls. The current survey paints a more varied picture with rebounds in the North East

(up 17 points to 41%), East Midlands & the East (up 7 points to 50%) and South East (up 7 points to 54%). Sentiment slipped elsewhere, especially in Wales which saw 16-point retreat to 30%. At 54%, sentiment was highest in the South East and Yorkshire & the Humber.

SALES IN THE NEXT SIX MONTHS

70

50

40

30

20

10

00


60

W M

idla

nds

Glos

, Oxo

n &

S M

idla

nds

North

Wes

t

York

shire

Scot

land

Sout

h Ea

st

Wal

es

Previous Latest

Tota

l

Lond

on

Sout

h W

est

E M

idla

nds

& Ea

st

North

Eas

t

The net balance of firms that anticipate an increase in sales over the next six months increased in four regions, namely the East Midlands & East (52%), South West (56%), Yorkshire & the Humber (51%), and the South East (59%). They also had the highest scores.

The North East continued to have the lowest balance at 29%, which was unchanged from the previous survey. Once again, Wales recorded the sharpest decline in sentiment with an 18-point fall to 36%, followed by the North West which was down 7 points to 40%.


13

OVERALL BUSINESS CONFIDENCE REMAINS STRONG IN MOST REGIONS


40

20

15

10

5

0

-5


25

30

35

North

Wes

t

Lond

on

W M

idla

nds

Scot

land

Wal

es

Sout

h W

est

Previous Latest

Tota

l

Sout

h Ea

st

E M

idla

nds

& Ea

st

York

shire

North

Eas

t

Glos

, Oxo

n &

S M

idla

nds

The net balance of businesses that anticipate an increase in headcount over the next six months rose in the South East, South West, East Midlands & the East and Yorkshire & the Humber but fell elsewhere with the exception of the West Midlands where it was unchanged.

The pattern of sliding Welsh sentiment about prospects for sales and new business appears to have fed through to employment. Wales saw the largest net balance decline, of 21 points to 6%, followed by the North East with a 14-point setback to -2%.

BUSINESS CONFIDENCE

60

50

40

30

20

10

0


Sout

h Ea

st

Wal

es

York

shire

Scot

land

Previous Latest

Tota

l

Sout

h W

est

W M

idla

nds

Lond

on

North

Wes

t

E M

idla

nds

& Ea

st

Glos

, Oxo

n &

S M

idla

nds

North

Eas

t

Overall business confidence fell back in six of the eleven regions, especially in Wales (down 14 points to 32%). Otherwise the declines were fairly small, ranging from 6 points in Scotland to 45%, to 1 point in the West Midlands to 42%.

The South East, South West and East Midlands & the East recorded the largest increases of 6 points each with all three regions also posting balances above the national average of 42%.


14

ANALYSIS BY SIZE OF FIRMEXPECTED PROFITS ARE STRONGEST FOR FIRMS WITH £2M-£5M ANNUAL TURNOVER


60

50

40

30

20

10

00


Total Below£1M

£1–2M £2–5M £5–10M £10–15M Over£15M

Previous Latest

The net balance for expected total orders over the next six months fell back for most company sizes. The exceptions were those with sales below £1m turnover, where it was unchanged

at 36% which was the lowest reading, and those above £15m where it rose by 1 point to 49%. Firms in the £1m-£2m band recorded the largest decline of 12 points to 40%.

PROFITS IN THE NEXT SIX MONTHS

60

50

40

30

20

10

00


Total Below£1M

£1–2M £2–5M £5–10M £10–15M Over£15M

Previous Latest

There was an 8-point decline to 32% in the net balance for expected profits in the next six months for companies with £10-£15m of annual sales. The highest balance of 42%

was for firms with £2m-£5m turnover – a rise of 1 point compared to the previous survey. This was followed by those in the £5m-£10m band with 38%.


15

BUSINESS OPTIMISM ABOUT THE NEXT SIX MONTHS IS HIGHEST FOR FIRMS IN THE £2M-£5M BAND


30

25

20

15

10

5

00


Total Below£1M

£1–2M £2–5M £5–10M £10–15M Over£15M

Previous Latest

The slight reduction of overall expectations in the latest survey has been driven by firms with turnover below £1m, £2m-£5m, and over £15m. Among those firms who envisaged additional

headcount, the largest net balance increase was in the £1m-£2m category who posted a 5-point gain to 23%.

BUSINESS CONFIDENCE

60

50

40

30

20

10

00


Total Below£1M

£1–2M £2–5M £5–10M £10–15M Over£15M

Previous Latest

Overall business confidence fell back across firms in the middle of the turnover distribution while rising for those in the tails. Companies with less than £1m of annual sales reported a 1-point rise in the net optimism balance to 36%, while those with over £15m posted a 2-point

improvement to 44%. With the exception of the smallest companies, all firms reported net balances in the 41%-46% range with highest score belonging to those with sales of £2m-5m, followed by the £5m-£10m category at 45%.


16

Find out more

£ Go to lloydsbank.com/businessinbritain

#Bizinbritain

Please contact us if you would like this information in an alternative format such as Braille, large print or audio. If you would like to contact us to discuss ways Lloyds Bank could support your business please do get in touch on 0800 587 2379. If you have a hearing or speech impairment you can use Text Relay (previously Typetalk).

Important informationThis document is confidential, for your information only and must not be distributed, in whole or in part, to any person not involved with the proposed transaction without the prior consent of Lloyds Bank plc (“Lloyds Bank”). Whilst Lloyds Bank has exercised reasonable care in preparing this document and any views or information expressed or presented are based on sources it believes to be accurate and reliable, no representation or warranty, express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. In particular, whilst we have sought to identify appropriate products and to provide guidance as to how those products might operate under various accounting standards we are not, and should not be considered to be, giving an accounting opinion or advice and you should conduct your own independent enquiries and seek your own professional advice in this respect. Any transaction which you may enter into with us will be on the basis that you have made your own independent evaluations based on your own knowledge and experience and any professional advice which you may have sought in relation to all aspects of the transaction including legal, regulatory, tax or accounting. All terms contained herein, including pricing, are indicative only and subject

to change without notice. This material has been prepared for information purposes only and Lloyds Bank, its directors, officers and employees are not responsible for any consequences arising from any reliance upon such information. If you receive information from us which is inconsistent with other information which you have received from us, you should refer this to your Lloyds Bank Sales representative for clarification.

Calls may be monitored or recorded. Please note that any data sent via e-mail is not secure and could be read by others. Lloyds Bank plc Registered Office: 25 Gresham Street, London EC2V 7HN. Registered in England and Wales no. 2065. Telephone: 0207 626 1500.

FDs’ Excellence Awards in association with ICAEW and supported by the CBI & Real Business. For more information visit lloydsbank.com/bankoftheyear

MS52811 (07/15)

business in britain - lloyds banking group · a survey of business opinion and trends 46th edition...

Documents