Laptop

Businesses are less confident about their prospects for the next six months, with UK and global demand seen as the biggest threats to their fortunes in 2016, according to the latest report from Lloyds Bank.

The Business in Britain report, now in its 24th year, gathers the views of 1,500 UK companies, predominantly small to medium sized businesses, and tracks the overall “balance” of opinion on a range of important performance and confidence measures, weighing up the percentage of firms that are positive in outlook against those that are negative.

The report's confidence index - an average of respondents' expected sales, orders and profits for the next six months - fell to 38%, down from 43% in July and January 2015. However, the index remains close to its recent highs and above the long-term average of 24%.

Just under a third of firms (31%) identified weaker UK demand as the main threat to their business over the next six months - a rise from 29% in July. This was closely followed by a rise in the proportion of exporters who cited weaker overseas demand as the biggest threat to their business - a rise from 23 to 25%.

The net balance of exporters expecting an increase in total exports across the globe fell by 11 points to 35%, reflected by relatively large decreases in firms’ intentions to export to Europe and Asia Pacific.

Exporters stated that they were more concerned about the negative impact of the strength of the pound against the Euro than the US dollar. Over a third of firms (34%) said that the value of the pound against the Euro was having a negative impact on their exports, while over a fifth (21%) said the same for the value of the pound against the dollar.

Tim Hinton, managing director of mid markets and SME banking at Lloyds Banking Group, said: "Business confidence has slipped back slightly as companies see slowing demand as a threat to their business in 2016, both at home and abroad.

“Global economic conditions are causing concern in the short term, with Sterling’s strength against the Euro causing issues for exporters. However confidence levels remain close to recent highs, especially on the back of three years of economic growth.

“Businesses should continue to be prepared for interest rate rises and currency fluctuations, with the recent decision by the US Federal Reserve a reminder that this benign environment is not here to stay."