Lloyds TSB: UK firms tough out sub prime credit crisis

08 October 2007
Following the US sub prime credit crunch over the past month, figures from Lloyds TSB Corporate Markets Business Barometer for September have revealed that UK industry is holding its own, despite fears to the contrary.

The confidence boost was recorded amongst UK firms in September, with 70 percent saying that they were expecting their business activity to increase over the next 12 months – this is an increase of 11 percent from August’s survey. The positivity continued with just seven percent of UK firms predicting that their activity will decrease over the same period.

It appears that the industrial sector is responsible for driving the buoyant mood with the balance of firms expecting higher rather than lower business activity after figures showed a rise to 83 percent in comparison to 38 per cent recorded in August. In addition, the service sector confidence was also high, with the balance standing at 81 per cent, up from August’s balance of 68 percent.

The strong survey results have also been backed by the official figures which have revealed that profitability for the second quarter of this year has already smashed record levels.

While this may be good news, when it comes to the wider economy, it appears that the general mood is one of caution after the balance of firms reported that they felt that that there may well be a drop in profitability over the coming months.

Trevor Williams, chief economist at Lloyds TSB Corporate Markets, explains: “While UK firms are clearly concerned about the possible wider implications of the credit market turmoil, such bullish results suggest there is no evidence of any impact on their day to day business activities. In fact, business confidence has increased in each of the last three months, at a time when the inter-bank liquidity squeeze and fears over the US sub-prime crisis spreading to the global economy have been most intense.

“Since the US Fed cut interest rates, investor confidence in the prospects for the corporate sector has soared, as reflected in stock market rallies. In the UK, official data suggest that the majority of the corporate sector will perform strongly this year in terms of output growth and profit.”

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