Overall UK business confidence rose to a 9-month high in May, according to the Lloyds Business Barometer, after a softening of international trade tensions. However, despite growing overall optimism among British business, retail confidence fell to its lowest point since January 2025, as post-Budget costs start to bite.

A sharp rebound in British business optimism

The Barometer from Lloyds, which surveys 1,200 firms with annual turnovers of £250,000+, had previously recorded a 10-point drop in April following concerns about the impact of Trump Tariffs. However, the index more than rebounded in May, rising by +11 points to 50%, marking the most positive outlook from UK companies across all sectors since August 2024.

“The rebound in business confidence suggests that firms might be in a stronger position for the next quarter,” said, Hann-Ju Ho, Senior Economist at Lloyds Commercial Banking. “The rise in confidence is driven by a sharp increase in economic optimism, reflecting the recovery in financial markets amid the easing of global trade tensions.”

This growing optimism from British business is expected to trickle through into hiring and staff pay. According to Lloyds, 40% of firms anticipate increasing staffing levels, a rise of +3 points compared to April, while 34% forecast pay growth of 3% or higher. 

Retail confidence stutters amid rising labour costs

While confidence levels among the construction and service sectors were among the most improved, rising to 56% and 54% respectively, the retail sector bucked the trend. Confidence from retailers fell by -5 index points to 40%, marking its lowest level since January 2025, according to Lloyds’ Business Barometer.

This mirrors a similarly gloomy outlook from the CBI earlier in May, which suggested retail confidence had plummeted further, falling to the lowest point in five years. Its quarterly Distributive Trades Survey showed labour tax hikes had slashed retail sector optimism to its lowest point since the pandemic, as businesses grapple with rising costs.

“This fairly downbeat survey highlights some of the challenges facing the retail sector,” Ben Jones, Lead Economist at the CBI, said.

“Firms are feeling the impact of higher NICs and the National Living Wage increase. Our quarterly survey suggests that retailers are cutting back on hiring, scaling back investment and expect to increase selling prices at the fastest pace for over a year,” Jones added.

He called on the Government to use the upcoming Spend Review as “an opportunity to kickstart growth and incentivise investment.”