New Year business confidence rocked by domestic demand fears
Uk Companies are bracing themselves for slowdowns in their trading in first half of 2011, suggests a report by Lloyds.
Overall New Year business confidence is now damaged by widespread fears that the weakening of domestic demand will have an effect on profits, the report revealed. Businesses are expected to freeze investment while planning price hikes in their efforts to maintain margins, according to Lloyds’ Business in Britain survey, tracking companies’ views on sales, and profits for the upcoming six months among other things.
The bi-annual survey that asks 1,800 firms for their opinions found that business confidence dropped on the first occasion in a year and a half to a total net balance of 12%, 10% below a 16-year average. In the last survey, it stood at 18%. John Maltby, who is managing director at Lloyds TSB Commercial commented that businesses are lot less upbeat than ever before on their prospects for sales, and profits. In order to keep their profits at the current levels, many businesses will be plotting price increases.
Lloyds told how dampening optimism was mostly driven by fears on domestic demand, with 57% of the companies surveyed reporting that weaker markets in the UK pose the most serious threat to trading prospects for the upcoming six months. In the retail sector, this increased up to 68%, reflecting fears on the impact of the increase to 20% VAT as well as fragile consumer confidence.
The survey found that fears on rising inflation and possible higher interest rates were the main contributors to plans to increase company prices, with 295 planning price hikes in comparison to the 11% that instead plan to reduce them.