Respondents were asked about inflation expectations. The survey has some evidence on excess capacity, and therefore indirectly on likely future inflation trends. The large numbers of firms working below capacity appears to suggest that inflation pressures, at least from the medium sized business portion of industry, will be small in any upturn. If business expectations about the regional pattern of recovery, discussed earlier, are proved right, then it may be that the spare capacity is in the wrong parts of the country. A new business survey carried out by Lloyds Bank Commercial Service among medium sized commercial customers in late November and early December suggests that businesses are on average confident of some upturn in the next six months.
Confidence appears to vary significantly by region and by business sector.
London and the South East are relatively optimistic regions, as is the North. Confidence appears solidly based in these regions since it is founded on expectations of increased turnover rather than order books. The Midlands remains relatively pessimistic, especially about profitability. Looking at industry sectors, the most striking lack of confidence is shown by Construction, which, despite having suffered more than other sectors already, expects on balance that order books, turnover and profitability will all decline further in the next six months. Retailers are also relatively pessimistic, presumably due to the slow speed of consumer spending recovery.