Confidence in the strength of the economy among British businesses waned last month, new data suggests. 

The closely-watched Lloyds Business Barometer showed 'economic optimism' among businesses fell for the first time since April, dipping three points per cent in August to 44 per cent.

Economic optimism remains well above the long-term average of 19 per cent, Lloyds said.  

The increase was driven by a five-point rise in businesses confidence in their trading prospects to 63 per cent, representing the highest level since 2014. 

At 3.8 per cent, inflation has reached its highest level since January 2024, amid spiralling air fare and food costs. 

The Bank of England expects interest rates to peak at 4 per cent in September. As a consequence of higher inflation, its pace of interest rate cuts is expected to slow. 

Fears among both businesses and households are mounting amid speculation over further potential tax rises in the upcoming Autumn Budget. 

Labour has vowed not to hike taxes for 'working people', meaning businesses could be in the firing line, but which, if any, taxes could be altered, remains unknown. 

Business confidence creeps up - but with caveats

While optimism in the economy among business leaders fell this month, business confidence, according to the report, rose modestly. 

Business confidence rose two points to 54 per cent in August, the data from Lloyds showed. 

Confidence among manufacturing businesses rose 14 points this month to 62 per cent, a level not seen since 2015. 

Retailers also saw an increase in confidence this month, with levels up 13 points to 57 per cent, a five-month high. 

But construction business confidence fell by five points to 40 per cent, a four-month low, while confidence in service sector firms also slipped eight points to 53 per cent. 

Five of Britain's twelve regions and nations saw a rise in business confidence in August. 

London, the East of England and the West Midlands saw strong improvements this month. 

But, companies in Wales were less confident, with a fall of 13 points, even though Wales remained the joint third most confident location. 

Across all sectors, wage growth forecasts rose by four points, with 38 per cent predicting average pay increases of 3 per cent or more. 

The proportion of businesses expecting to increase wages by 4 per cent grew by five points to 23 per cent, while those forecasting 5 per cent or higher also climbed five points 12 per cent.

Businesses’ hiring intentions for the next 12 months increased again in August, despite cost pressures. 

Eighty-three per cent of the 1,200 businesses surveyed said increases in employment-related costs would have limited impact on hiring plans, while a third claimed it would have a moderate effect. 

But 17 per cent of firms surveyed said higher employment-related costs introduced by Rachel Reeves would have a 'major or severe' impact on their business and hiring plans. 

According to the report, 62 per cent of all businesses surveyed expected to hire more staff in the coming year, with 12 per cent anticipating reducing employee numbers, increasing the net balance by one point to 50 per cent.

On price hikes, in August, the net balance of firms expecting to raise prices over the next year increased. 

Sixty-seven per cent of businesses surveyed said they planned to raise prices in the coming year, while those anticipating price reductions fell slightly to 2 per cent, from 4 per cent the previous month. 

Hann-Ju Ho, a senior economist at Lloyds Commercial Banking, said: 'This continued upward trend in business confidence suggests UK firms remain optimistic about their own trading prospects while there is a modest cooling of confidence in the wider UK economy. 

'Firms are focusing on what they can control, with many looking to pursue growth opportunities, including entering new markets and adopting new technologies.

'Wage expectations have seen a notable shift this month, but it remains to be seen whether this signals the start of a sustained trend or a temporary uplift, as they have been broadly stable in recent months.' 

I made five people redundant 

We've faced many challenges 

Karim Ullah, 52, lives in Hertfordshire, and opened an Indian restaurant called Brohmon in Essex in March 2020. 

He told the Daily Mail: 'We have had so many terrible things happen to us since we opened our restaurant in March 2020. We had to close it on our eleventh night, due to the first lockdown.'

Karim added: 'Since Covid, we have endured multiple challenges including the cost-of-living crisis stopping people from going out to restaurants and very high energy and food costs. Staff costs are going up every year and this is something Rachel Reeves is responsible for.'

However, Karim is optimistic for the future and even diversified into craft beer and artisanal gin production in 2023. 

He said: 'Every time we look like we're about to close our restaurant we come back with something that gives us a tremendous boost! It's been a roller-coaster ride, but we are very optimistic about our future.

'We are finally seeing enough people coming to our restaurant to allow the restaurant to stay open and hopefully we will be able open more branches. If we have to close the restaurant, we can always focus on our beer and gin for growth.'

On the economy, Karim said: 'I am confident about our business, but not very confident about the British economy. Unless more people have more money in their pockets, I think it's going to be very tough for most people in the country. I don't see things changing fast. I of, course hope, I'm wrong on this.'

I had to make five people redundant this week 

Wendy Norman, 59, lives in Cromer and runs a a virtual practice management company for private healthcare clinics called LiveLinkResource Limited. 

She told the Daily Mail: 'I'm very surprised to hear that business confidence is improving because it's not what I'm hearing on the ground. I have a wide network of business contacts - SMEs. I do not know one that's not either downsizing, considering closing or have stopped recruiting.'

She added: 'Most of our clients have a physical premises. With their utility bills tripling in some cases, this was a barrier for us to be able to raise our prices enough to cover the double-whammy of the wage and NI increases in April. Our clients also have a ceiling price and raising their prices considerably in turn, would have been unaffordable for their patients. So we were all a bit "stuck". 

Wendy has been forced to make five people redundant at her business this week.

She said: 'I made five people redundant recently. It was entirely due to higher wages and employer national insurance contributions as we were unable to raise our prices enough to compensate due to our clients financial constraints.

'I started my business 14 years ago and never once considered making redundancies. It broke my heart to do this as I felt a total failure. Some have been with me for a number of years. There have been a lot of tears.'

She added: 'I have completely changed our business model to a mix of UK employees and virtual assistants in South Africa trained by us. This will lower our payroll considerably and enable us to continue trading and grow. If we hadn't have made this decision, we wouldn't have been trading by Christmas.' 

There a number of different business confidence surveys published each month and annually, which can make it tricky to establish what company leaders sentiments are at any given time. 

The latest Lloyds survey had responses from 1,200 businesses with an annual turnover of £250,000 or more. 

This week, data from the Confederation of British Industry indicated that business confidence in the services sector has plunged. 

The CBI’s latest service sector poll found that a majority of firms in the sector were downbeat about their prospects and discounted the acceleration in activity usually following the return to work after the summer break.

Dwindling sales and rising costs meant most firms in the services sector were suffering a profit squeeze, the CBI said, prompting lower hiring levels and cuts to investment.

Consumer services firms reported a negative outlook for the eighth consecutive month, while services companies that sold to other businesses reported a drop in activity for the fourth consecutive month, the CBI said.

Research from Hargreaves Lansdown in August showed investor confidence in Britain had fallen amid concerns over weak growth and 'mixed messaging' from Labour on tax and spending plans.

The findings from Hargreaves Lansdown showed optimism fell globally – but Britain was among the worst hit countries.

Confidence in Britain’s economic growth among investors tumbled 16 per cent to a four-month low in the first week of August amid 'ongoing concerns over the country’s economic trajectory’' the broker said.