The renewed sense of optimism comes despite figures on Monday confirming that the economy slowed sharply in the second half of the year. — Bloomberg
LONDON: UK businesses ended 2025 feeling more upbeat about the economy’s prospects after they were spared much of the tax pain at last month’s budget.
Lloyds, a bank, said on Tuesday its business barometer rose five points to a net balance of 47%. It measures the difference between firms that are optimistic versus those that are pessimistic.
While it was only the highest reading since October, it was up on levels seen just before Chancellor of the Exchequer Rachel Reeves’ budget. It was also 10 points higher than at the start of the year and optimism over the wider economy hit a four-month peak.
The figures add to evidence from the PMIs suggesting that business confidence bounced back after Reeves unveiled her fiscal plans. She announced £26bil of tax rises at her Nov 26 budget but businesses avoided a repeat of her first budget when they were hit hard by higher payroll taxes.
Instead households will face the worst pain from her second budget, though much of it is backloaded.
The renewed sense of optimism comes despite figures on Monday confirming that the economy slowed sharply in the second half of the year.
While the UK was the joint-fastest among the Group of Seven economies in the first half of the year, growth eased to 0.1% in the third quarter. Forecasters have also warned the economy could contract in the final three months of the year after monthly figures showed falls in output in September and October, when speculation mounted over tax rises.
“The uplift in business confidence is driven by an 11-point increase in optimism in the wider economy,” said Hann-Ju Ho, senior economist at Lloyds Commercial Banking. “Confidence changed most in the construction sector which saw a big boost in December, to the highest level this year.”
Private sector economists expect UK growth to slow next year to 1.1%, down from a predicted 1.4% for 2025. Reeves has vowed to “beat” forecasts.
While Lloyds’ gauge tracking expectations for businesses’ own price increases eased to levels seen at the start of the year, wage growth predictions remained steady.
Some 18% of firms expect pay to rise by 4% or more over the next 12 months. — Bloomberg
