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UK business optimism at 18-month high on hopes for rate hike pause

by Uma
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2023 08 30T231612Z 1 LYNXMPEJ7T122 RTROPTP 4 BRITAIN ECONOMY BUSINESSSENTIMENT

UK business optimism at 18-month high on hopes for rate hike pause

LONDON (Reuters) – British companies are their most confident since before Russia’s invasion of Ukraine, according to a survey that also showed they planned to keep on raising prices and staff pay, adding to worries for the Bank of England about high inflation.

Contrasting with signs of an economic slowdown in other recent surveys, the Lloyds Bank Business Barometer measure of confidence jumped by 10 points in August to 41%, its highest since February 2022.

“The bounce in economic optimism this month is the stand-out point,” Hann-Ju Ho, senior economist at Lloyds Bank, said.

“Our analysis shows that businesses felt relief that interest rates may be reaching their peak, alongside hopes that measures to tackle inflation are having an impact.”

The BoE raised rates for the 14th time in a row this month to counter an inflation rate running at almost 7%. But the quarter-percentage-point increase was smaller than June’s 50-basis-point hike.

Investors mostly expect the Bank Rate to peak this year at 5.75%, up from its current level of 5.25%.

Britain has avoided a widely forecast recession so far this year but worries about an economic slowdown grew last week when a measure of business activity in August fell to its lowest since January 2021.

Thursday’s survey showed firms’ hiring intentions were the strongest in 15 months and the share of businesses planning to increase staff wages was the highest since Lloyds began asking about pay in 2018, with 30% of firms predicting a 3% pay rise.

Other surveys have shown pressure on firms to raise pay by more although human resources data company XpertHR last week reported the first slowdown this year in the pace of wage deals during the three months to July.

A net balance of 56% of firms intended to increase their prices, Lloyds said.

Smaller firms were more upbeat than bigger ones which had more exposure to the global economy and manufacturing firms were more downbeat than other companies, it said.

 

(Reporting by William Schomberg; Editing by Bernadette Baum)