November 2007
UK firms' confidence in their own
business activity has deteriorated for the first time since
June, according to the Lloyds TSB Corporate Markets Business
Barometer.
The monthly survey shows that the number
of companies expecting their business activity to increase
over the next
12 months
fell from 70% in September to 64% in October. This is the
first time that confidence has followed a downward path since
June of this year and indicates that UK economic growth may
have peaked, making a base rate cut in early 2008 increasingly
likely.
In addition, UK firms' perception
about the health of the wider economy has weakened, also
hinting that
UK output
is now past its peak. The balance of firms feeling more rather
than less confident about the state of the general economy
fell to 17% in October, down from 20% in September. This
represents the lowest balance of optimism reported since
December 2006 and now sits below the 5-year survey average.
Trevor
Williams, chief economist at Lloyds TSB Corporate Markets,
said: "A strong pound, slower eurozone growth
and higher energy costs are all factors weighing heavily
on business confidence this month, particularly among manufacturers.
Firms with high gearing, weak cash flows and those dependent
on earnings from sectors built on consumers' discretionary
spending will experience the most anxiety.
"These results
indicate that UK economic growth is likely to slow in the
final three months of 2007. However, although
these signs of weaker business confidence are a concern,
the MPC is not likely to make any knee-jerk rate cuts unless
there is actual evidence of slower growth over a sustained
period. Therefore, a rate cut is unlikely before February
2008."
Across the sectors, the balance of confidence
fell among industrial and service firms but rose among distribution
companies. The balance of firms feeling more rather than
less confident about their own business activity fell by
26% among industrials, by 7% among service sector firms but
rose by 19% among distribution firms. Similar trends were
seen when asked about each sector's view of the general
economy, with balance trends falling by 22% for the service
sector, 23% for industrials but rising by 43% for distribution
firms.
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