UK firms resilient to market turmoil
8 October 2007
Despite worries that the US sub-prime credit crisis will lead to weaker economic growth on this side of the Atlantic, UK firm’s confidence in their own business activity is increasingly robust, according to September’s Lloyds TSB Corporate Markets Business Barometer.
Confidence amongst UK firms rocketed in September, with 70 per cent expecting their business activity to increase over the next 12 months. This is an increase of 11 per cent from August’s survey. Just 7 per cent of UK firms predicted that their activity will decrease over the same period.
Confidence was driven by the industrial sector, with the balance of firms expecting higher rather than lower business activity rising sharply to 83 per cent, compared with just 38 per cent in August. Encouragingly, service sector confidence was also high, with the balance standing at 81 per cent, up from August’s balance of 68 per cent.
Such strong survey results suggest that profits will continue to grow this year for the majority of UK companies, a view underpinned by official data showing that companies’ profitability reached record levels in the second quarter of this year.
However, the credit crisis has hit firms’ confidence in the wider economy. This was demonstrated by the balance of firms feeling more, rather than less, optimistic about the economy dropping 12 per cent, to 20 per cent in September.
Trevor Williams, chief economist at Lloyds TSB Corporate Markets, said: “While UK firms are clearly concerned about the possible wider implications of the credit market turmoil, such bullish results suggest there is no evidence of any impact on their day to day business activities. In fact, business confidence has increased in each of the last three months, at a time when the inter-bank liquidity squeeze and fears over the US sub-prime crisis spreading to the global economy have been most intense.
“Since the US Fed cut interest rates, investor confidence in the prospects for the corporate sector has soared, as reflected in stock market rallies. In the UK, official data suggest that the majority of the corporate sector will perform strongly this year in terms of output growth and profit.”
