UK business confidence soared to its highest level in nine months in May 2025, signaling renewed optimism among firms as global trade tensions ease and economic growth accelerates. The Lloyds Business Barometer sentiment gauge jumped 11 points to 50, reversing April’s decline caused by US tariff hikes and reaching levels last seen shortly after Prime Minister Keir Starmer took office. This rebound reflects a more positive outlook for the UK economy amid improving financial markets and a provisional UK-US trade deal that has eased export pressures.
Surge in Business Confidence Reflects Trade Deal and Market Recovery
The sharp rise in business sentiment in May follows a turbulent period marked by US President Donald Trump’s threatened “reciprocal tariffs,” which unsettled markets and dampened UK firms’ outlooks in April. The 11-point increase in the Lloyds Business Barometer—from 39 in April to 50 in May—fully erased the previous month’s losses and restored confidence to its highest level since August 2024.
This improvement is largely attributed to a provisional UK-US trade agreement announced in early May 2025. The deal reduces tariffs on British car exports and removes duties on aluminium and steel, providing relief to UK manufacturers facing export headwinds. Additionally, a US court ruling declaring some tariffs illegal and the US administration’s pause on further tariff hikes until July have contributed to a more stable global trade environment, boosting optimism across Asian, European, and American markets.
Economic Growth and Inflation Outlook Support Optimism
The confidence boost coincides with robust UK economic data. The UK economy expanded by an estimated 0.7% in the first quarter of 2025, marking the fastest quarterly growth in over a year. This growth was supported by strong retail sales and increased exports to the US ahead of tariff adjustments. Reflecting this momentum, the International Monetary Fund recently upgraded its full-year UK growth forecast to 1.2%.
Despite inflation rising to 3.5% in April—the highest since January 2024—businesses are showing signs of resilience. The Lloyds survey found that fewer firms plan to raise prices compared to April, with intentions to increase prices down five points to 65%. Moreover, hiring intentions have improved, with a third of businesses planning pay rises of 3% or more, signaling confidence in sustaining workforce growth.
Regional and Sectoral Variations in Confidence
Confidence gains were widespread across the UK, with notable regional and sectoral differences. Scotland’s business confidence rose 12 points to 52%, surpassing the UK average and reaching its highest level since early 2024. Optimism about the Scottish economy surged by 29 points to 48%, despite a slight dip in confidence regarding individual business prospects.
Regionally, Wales led in turnover growth with 19% of businesses reporting higher sales in March 2025 compared to February, while the North West had the lowest at 16%. Conversely, the North West also saw the highest proportion of firms (24%) experiencing turnover declines. The service and construction sectors showed particularly strong gains in confidence, whereas manufacturing continued to face challenges due to weaker overseas demand.
Business Leaders’ Reactions and Future Outlook
Business leaders have welcomed the rebound in confidence as a sign of the UK economy’s underlying strength amid ongoing challenges such as inflation and global uncertainty. The Institute of Directors (IoD) reported a rise in its Economic Confidence Index to its highest level since before the 2024 Autumn Budget, reflecting improved investment, headcount, and cost expectations.
Hann-Ju Ho, senior economist at Lloyds Commercial Banking, noted that the confidence rebound “suggests that firms might be in a stronger position for the next quarter,” driven by increased economic optimism and easing trade tensions.
However, concerns remain about inflationary pressures and the impact of taxation, which has overtaken inflation as the main worry for UK firms. According to recent data, 63% of businesses cited taxation as a key external concern in late 2024, linked to rising National Insurance contributions starting April 2025.
Challenges Persist in Manufacturing Sector
Despite the overall positive trend, the manufacturing sector continues to face headwinds. The Confederation of British Industry (CBI) reported a decline in manufacturing sentiment to -33 points in the second quarter of 2025, a slight improvement from -47 in the first quarter but still indicating pessimism. Manufacturing output and new orders remain in negative territory, driven by weak domestic and export demand. Firms have also been shedding jobs amid these challenges.
Input costs for manufacturers are rising and expected to continue increasing through July 2025, adding further pressure on the sector. Investment intentions remain subdued due to demand uncertainty and financial constraints.
The surge in UK business confidence to a nine-month high in May 2025 marks a significant turnaround from earlier in the year, reflecting easing US trade tensions, a provisional trade deal, and strong economic growth. While inflation and taxation remain concerns, improved hiring and wage growth plans, alongside regional and sectoral optimism, indicate a more upbeat business environment.
This renewed confidence provides a positive signal for the Labour government under Prime Minister Keir Starmer, suggesting that UK firms are better positioned to navigate the challenges ahead and support economic recovery in the second half of 2025.
