Lloyds Banking Group’s latest Business Barometer shows UK business confidence fell in June, with domestic companies reporting sharper pressure while internationally exposed businesses remained more optimistic.
Overall business confidence fell three points to 44%, below the 12-month average of 47%. Lloyds calculates the measure as an average of companies’ economic optimism and their own trading outlook.
Optimism in the wider economy fell four points to 31%, below the 12-month average of 38%. The share of companies feeling optimistic remained unchanged at 55%, but those feeling more pessimistic increased by four points to 24%. Rising inflation, cost pressures, and continuing global uncertainty remained the main factors weighing on sentiment.
Companies’ own trading outlook fell two points to 56%, compared with a 12-month average of 57%. Sixty-four per cent of respondents expect stronger output over the year ahead, down two points from May, while the share expecting weaker activity remained unchanged at 8%.
The sharpest split was between domestic and internationally active companies. Domestic businesses’ economic optimism fell 21 points to 3%, an 18-month low and significantly below the 12-month average of 20%. Their trading outlook fell 11 points to 37%.
Internationally trading businesses moved in the opposite direction. Their economic optimism increased eight points to 47%, while their positive trading outlook rose five points to 68%. Lloyds said stronger customer demand, improved financial conditions, increased investment plans, and better supply chain conditions supported the more positive reading.
Hiring intentions rose for the first time in three months. The share of companies planning to increase their workforce rose two points to 55%, while those expecting headcount reductions fell three points to 14%. Companies planning to hire cited the need to meet stronger demand and expand capacity.
Investment appetite weakened slightly, with the share of businesses open to investment opportunities down three points to 34%. Training was cited by 41% as a priority area, technology by 39%, and AI by 31%.
Amanda Murphy, chief executive of Lloyds Business and Commercial Banking, said: “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.
“More broadly, we’ve recently seen an uptick in investment towards energy security and efficiency to support long-term resilience. Where firms are hiring, they’re recruiting highly specialist skills to meet strengthening demand and expand capacity.”
The sector picture was uneven. Manufacturing confidence fell 10 points to 33%, compared with a 12-month average of 46%, driven by weaker economic optimism. Retail confidence fell eight points to 45%, while construction increased two points to 46%. Services remained stable for the second month at 45%.
Hann-Ju Ho, senior economist at Lloyds Commercial, said: “The June data shows a more uneven picture across sectors than in May. Manufacturing and Retail both saw significant declines in confidence, with Manufacturing in particular dropping sharply and now sitting below its 12-month average likely reflecting a mix of softer demand and ongoing cost challenges. Retail also fell from a strong reading in May, driven by a fall in economic optimism.
“By contrast, construction saw a modest improvement in confidence and was the only sector to report stronger expectations for its own trading outlook. Services remain broadly steady, although the underlying picture is mixed, with stable demand offset by continued cost pressures.
“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.”
Regionally, confidence was highest in the East Midlands at 56% and London at 55%, with both regions posting monthly increases. The North East ranked third at 54% despite a 15-point decline. Sentiment fell most sharply in the East of England and the West Midlands.
The data points to an economy in which exposure matters as much as sector. Companies trading internationally are reporting stronger demand and improved supply conditions, while domestic businesses are more exposed to weak consumer confidence, cost pressure, and tighter financial conditions. The headline confidence measure therefore masks very different operating environments.
International resilience also sits against a more volatile trade backdrop. With EU-China trade talks entering a deadline phase, rare earth controls, export exposure, and industrial competition are becoming sharper supply chain issues. International companies may be benefiting from improved demand, but they remain exposed to tariffs, export controls, currency movements, customs friction, and geopolitical shocks.
The hiring data is notable because it improved despite weaker confidence. Some companies are still constrained by capacity and specialist skills, rather than expanding headcount on the back of broad optimism. Where investment priorities centre on training, technology, and AI, recruitment decisions are likely to be targeted at specific capability gaps. The skills gap is widening as work changes, leaving employers with capability needs that are harder to fill through traditional recruitment pipelines.
Manufacturing’s decline gives the survey its clearest warning signal. The sector is exposed to energy costs, input prices, trade friction, capital expenditure cycles, and weaker demand in key export markets. A 10-point fall in confidence suggests manufacturers are not yet seeing enough stability to offset those pressures.
Retail’s decline points to continuing sensitivity around household budgets and cost inflation. Although retail confidence remained above manufacturing, an eight-point monthly fall from a strong May reading shows how quickly sentiment can shift when consumer-facing companies reassess demand, pricing, and margin pressure.
Construction’s modest improvement is more encouraging, particularly because it was the only sector to report stronger expectations for its own trading outlook. Even there, confidence remains close to its 12-month average rather than breaking decisively higher. Materials costs, labour availability, planning delays, infrastructure demand, and financing conditions continue to shape the sector’s path.
The regional variation adds another layer for companies with national footprints. London and the East Midlands are showing stronger confidence, while the East of England and West Midlands weakened sharply. Regional supply chains, labour markets, housing costs, infrastructure access, and sector composition can all produce different conditions within the same national economy.
Taken together, the Barometer suggests resilience is becoming more uneven. Companies with improving demand channels are still hiring, investing in energy efficiency, and targeting specialist skills. Domestic companies with weaker demand and heavier cost exposure are more cautious. The second half of the year will test whether targeted investment can continue while confidence remains divided by sector, region, and international exposure.
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