Firms in the North East have reported the highest levels of confidence in the UK, despite a four-point drop in July.

The latest Business Barometer from Lloyds Bank Commercial Banking shows companies in the North East reported lower confidence in their own business prospects month-on-month, down 15 points at 38%. When taken alongside their optimism in the economy, up seven points to 48%, this gives a headline confidence reading of 43%.

Steve Harris, regional director for North East at Lloyds Bank Commercial Banking, said: “While inflationary pressures have started to ease, it remains a challenge for many businesses in the North East, who continue to grapple with high costs.

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“The good news is, firms in the region are displaying resilience, and forging ahead with plans to expand their teams, invest in their business and seek other opportunities for growth. Those looking to grow should take the time to plan ahead carefully, as well as consider what business investments they may need to make.

“We’ll remain by the side of customers to provide them with the support and advice they need to prosper.”

North East businesses identified their top target areas for growth in the next six months as investing in sustainability, evolving their offer and entering new markets.

The Business Barometer, which surveys 1,200 businesses monthly, provides early signals about UK economic trends both regionally and nationwide.

A net balance of 27% of businesses in the region expect to increase staff levels over the next year, up four points on last month.

Overall, UK business confidence dipped by six points to 31% in July, with nine out of 11 regions and nations reporting a lower confidence reading month-on-month.

Optimism in the economy has also fallen, dropping 11 points to 21%, the lowest levels since February this year.

However, firms remained resilient in their own trading prospects, with 43% of companies expecting business activity to increase over the next 12 months, up one point on last month and reaching a 14-month high.

Despite the fall in overall confidence, levels remain higher than the survey’s long-term average reading of 28% and every UK region and nation reported a positive confidence reading in July.

The North East reported the highest levels of business confidence at 43% (down four points on last month), followed by Yorkshire (down seven points) and the West Midlands (up two points) both at 38%.

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Retail was the only broad sector registering higher confidence (up six points to 35%), mostly reflecting stronger transport services.

The fall in overall business confidence this month was led by the service sector sentiment falling by seven points to 30%. While the fall in confidence was seen broadly across this sector, hospitality firms appeared to be more resilient.

Confidence also was lower in manufacturing (down 16 points to 34%) and construction (down eight points to 31%).