UK business confidence fell three points in June to 44%, the latest Lloyds Bank Business Barometer shows. The headline slipped below the 12-month average of 47%, with the Middle East war and cost pressures cited as the leading drags on sentiment. The survey covers 1,200 UK firms and was conducted across June.
The release captures a split inside UK industry that the top-line number does not show on its own. Companies focused on the domestic market reported economic optimism of just 3%, while firms trading internationally ran at 47%.
The Sub-Indices That Now Sit Below Their 12-Month Norms
The headline figure is an average of two parts: economic optimism in the wider UK economy, and each firm’s own trading outlook for the next twelve months. Optimism fell four points in June to 31%, three below its 12-month average of 38%. The trading outlook slipped two points to 56%, one notch below its 12-month average of 57%. Both sub-indices now sit below their year-long trend lines, per the monthly confidence poll methodology page.
Within the optimism sub-index, the share of firms describing themselves as upbeat held flat at 55%. The downward move came from the pessimistic side: that share rose four points to 24%. Inflation, cost pressures and global uncertainty were the reasons most often cited, with each one flagged by a larger share of respondents than in May.
Lloyds chose to flag the production-cost reading as the survey’s standout, with the bank tying the rise to higher wholesale energy prices flowing from the Gulf war. Manufacturing and retail, two of the heaviest UK users of gas and power, were also the two sectors with the steepest one-month falls. Energy costs have remained the single biggest brake on SME growth for much of the past year, the bank said, with smaller firms reminding policymakers they lack the household price cap that shelters domestic users. Wholesale Brent crude has eased in recent weeks and is now trading below the levels seen before the conflict broke out at the end of February. The disconnect between lower wholesale crude and unchanged industrial bills is one Lloyds expects to dominate the next round of questions.
Manufacturing Leads the Drop as Energy Costs Pinch
The steepest sector fall came from UK manufacturers, whose confidence fell 10 points to 33%, a reading below their 12-month average of 46%. Lloyds tied the move to a 16-point drop in manufacturers’ economic optimism, plus a fresh round of warnings on cost. Retailers took the next biggest hit, sliding eight points to 45% against a 12-month average of 49%.
| Sector | Confidence | Monthly change | 12-month average |
|---|---|---|---|
| Manufacturing | 33% | -10 | 46% |
| Retail | 45% | -8 | 49% |
| Services | 45% | 0 | 47% |
| Construction | 46% | +2 | 47% |
Construction was the one sector to move higher, ticking up two points to 46%, one below its trend. Services held flat at 45% for a second month. Manufacturing and retail together cover a large slice of UK energy demand, leaving them most exposed to a wholesale gas market that has stayed choppy since the Gulf war began in late February. The sector split shows where the war is hitting UK balance sheets hardest.
A 44-Point Optimism Gap Splits UK Firms Apart
The most eye-catching number in the June release sits below the headline. Among UK firms whose customers are mostly domestic, economic optimism collapsed 21 points to 3%, an 18-month low and below the 12-month average of 20%. Cost pressures, global uncertainty and tighter financial conditions were the three drags those firms flagged.
Firms that trade internationally told the opposite story. Their economic optimism rose eight points to 47%, against a 12-month average of 49%. Their positive trading outlook climbed five points to 68%, and they credited stronger customer demand and improving supply chain conditions for the lift. The split between the two cohorts echoes what other recent UK business confidence surveys have been finding in the same period.
The divide runs through sectors and across geography. Manufacturing, where many firms depend on a single national customer base, posted the largest sector drop in the release. Retail, which sells into UK households, took the second-largest fall. Construction and services, both of which include international contractors and consultancies, were flat to slightly higher. The same pattern shows up in the trading outlook split: domestic-only firms saw their year-ahead activity expectations fall 11 points, while international firms saw theirs rise by five.
While cost pressures and global uncertainty continue to weigh on business confidence, international firms are much more confident, with many seeing signs of supply chain disruption easing and strengthening customer demand.
Amanda Murphy is chief executive for Lloyds Business and Commercial Banking. She made the comment in the bank’s full June Business Barometer release, alongside the data tables for both cohorts.
The Gulf War’s Fifth Month and the Energy Bill Behind the Slide
The conflict driving the survey is now in its fifth month. Over the weekend, the United States and Iran traded strikes, each accusing the other of breaching the terms of the ceasefire agreed earlier in the spring. Lloyds firms named rising production costs as their single biggest worry in June, a complaint the bank tied directly to higher wholesale energy prices from the war. Smaller manufacturers say they have no price-cap protection of the kind afforded to households. The Iran war’s footprint is now firmly on UK manufacturing P&Ls, per the survey’s free-text replies.
Energy was not the only pressure on the list. Firms also cited continuing global uncertainty, which rose four points in Lloyds’ index of headwinds. The share flagging tighter financial conditions also climbed.
Lloyds’ list of named drags in the June survey runs across four categories. Each was cited by a larger share of respondents than a month earlier.
- Rising cost of production
- Inflation and broader cost pressures
- Continuing global uncertainty
- Tighter financial conditions
Energy costs sit at the top of that list and explain why domestic manufacturers are carrying the heaviest part of the slide. The wider war has put pressure on Gulf banking deposits at risk if the war escalates too, on top of the energy-supply tensions UK manufacturers are feeding back into the Lloyds release. Domestic-only UK firms flagged all four pressures at once in their free-text answers.
Hiring Holds Up as Investment Appetite Softens
Hiring plans offered the one piece of outright good news in the release. The share of firms intending to grow headcount rose two points to 55%, the first rise in three months. The share expecting to cut staff fell three points to 14%. Firms that wanted to hire said they needed more workers to meet stronger demand and to expand capacity.
Investment appetite moved in the opposite direction. The share of firms open to new investment fell three points to 34%, one notch below the 12-month average of 35%. Training (41%), technology (39%) and AI (31%) remained the three priority areas firms flagged when asked where new spending would go.
Overall, while some sectors are holding up, the data suggests that uncertainty is still feeding through unevenly and weighing more heavily on parts of the economy than others.
Hann-Ju Ho, senior economist at Lloyds Commercial Banking, made the observation in the bank’s June release. Separate data from the Office for National Statistics puts UK job vacancies at their lowest level in five years. The split marks where the labour market sits. Cooling demand for new roles is meeting thinner pipelines of fresh candidates.
Starmer’s Exit Adds a Westminster Wild Card
Outside the survey, the political backdrop has shifted as well. Keir Starmer resigned as prime minister earlier this month, clearing the way for Andy Burnham, the former mayor of Greater Manchester, to enter Downing Street as soon as mid-July. Burnham rejoined Parliament by winning a special election in the Makerfield constituency in June. He confirmed on social media that he would seek to succeed Starmer as Labour leader. The party is due to open leadership nominations on July 9, per Starmer’s resignation statement outside No 10.
Burnham has yet to set out his tax and spending plans or name a chancellor. Ed Miliband and Wes Streeting are regarded as the most likely candidates to take over from Rachel Reeves in No 11. He has signalled a preference for cutting VAT in hospitality and overhauling the business rates regime.
The Eurasia Group, a political risk firm, forecasts Burnham will take office on July 18 or 19, per the full account of Starmer’s resignation and Burnham’s rise. That handover lands the new team straight into the same energy-cost squeeze Lloyds has been reporting on. Wholesale prices are still elevated above pre-war levels despite the recent easing in Brent. UK firms are now answering the Barometer with two unknowns in front of them: a war in its fifth month and a new government still drawing up its first levers. The next Lloyds reading in July will be the first clean measurement of how firms take the new political signals.
