UK business confidence hits 17-month low as Middle East tensions lift costs

British business confidence tumbled to its lowest level in 17 months in September, according to a survey by Lloyds. The survey, conducted in September, found that the Lloyds Business Barometer dropped 12 points to 41%, from 53% in August. This marks the lowest reading since April of 2025. Despite being above the survey's long-term average of 30%, the reading still fell below its 12-month average of 47%.

Economic optimism declined 18 points to 31%, below its 12-month average of 37%. Businesses cited higher energy prices, rising costs, inflation, and global uncertainty as key concerns. The share of firms optimistic about the wider economy dropped from 64% to 52%, while pessimism rose to 21% from 15%. Trading outlook for firms also weakened, falling 8 points to 50%, compared to a 12-month average of 56%.

The proportion expecting higher output over the next year fell 9 points to 57%, while those expecting lower activity decreased to 7%. Price expectations rose by 1 percentage point to 52%, ending a three-month decline. Confidence weakened across most sectors, with manufacturing dropping 19 points to 36% and services falling 21 points to 35%.

Construction confidence fell 8 points to 47%, while retail was the only sector to improve, rising 3 points to 51%. Smaller companies experienced the sharpest decline, with confidence among firms with turnover below £5 million falling 14 points to 39%. Companies with turnover between £5 million and £25 million saw a 5-point decline to 54%, while firms with turnover between £25 million and £100 million increased by 3 points to 75%.

The decline in confidence was widespread geographically, affecting 10 of Britain's 12 regions and nations. The South West saw the steepest drop, with confidence falling 30 points to 25%, while the East Midlands fell 31 points to 20%. Wales had the lowest reading at 16%, a 38-point decline. The West Midlands showed the most improvement, with confidence rising 22 points to 69%, while the North East increased by 5 points to 50%.

Lloyds noted that the latest decline in business confidence is similar to the drop observed earlier this year following the initial escalation of the Middle East conflict.