UK business confidence has experienced a two-point increase to 54% in August, according to the latest Lloyds Business Barometer.

It marks the fourth consecutive monthly rise, driven by a five-point increase in trading prospects confidence, reaching its highest level since 2014 at 63%.

Despite this upward trend in confidence, economic optimism has seen a slight decline, dropping three points to 44%.

Nevertheless, this figure remains above the long-term average of 19%.

Lloyds Commercial Banking senior economist Hann-Ju Ho said: “This continued upward trend in business confidence suggests UK firms remain optimistic about their own trading prospects while there is a modest cooling of confidence in the wider UK economy.

“Firms are focusing on what they can control, with many looking to pursue growth opportunities, including entering new markets and adopting new technologies. Wage expectations have seen a notable shift this month, but it remains to be seen whether this signals the start of a sustained trend or a temporary uplift, as they have been broadly stable in recent months.”

Wage growth expectations have also seen an uptick, rising by four points. Currently, 38% of businesses anticipate average pay increases of 3% or more.

Notably, the percentage of companies expecting to raise wages by 4% has increased by five points to 23%, with those forecasting wage hikes of 5% or more also climbing by five points to 12%.

Despite ongoing cost pressures, businesses’ hiring intentions for the next 12 months have shown resilience, with the majority (83%) of surveyed firms indicating that employment-related cost increases would have a limited impact on their hiring plans.

However, 17% expressed concerns that these costs would have a significant impact on their operations.

In terms of employment outlook, 62% of businesses surveyed plan to increase staff numbers in the coming year while 12% anticipate a reduction in their workforce.

This results in a net balance increase of one point to 50%.

Businesses’ expectations regarding price adjustments have also shifted, with the net balance of those anticipating price increases over the next year rising by four points to 65%.

A total of 67% of companies (up from 65%) plan to raise prices while those forecasting price reductions have slightly decreased to 2% (from 4%).

Sector-specific confidence levels have seen variations this month.

Manufacturing businesses experienced a notable 14-point surge in confidence, reaching 62%, a level last seen in 2015.

Retailers also reported a confidence boost, with levels increasing by 13 points to 57%, marking a five-month high.

Conversely, the construction sector witnessed a decline in confidence, falling by five points to 40%, the lowest in four months.

Similarly, confidence within service sector firms dropped by eight points to 53%.

Regionally, five of the UK’s 12 regions and nations recorded increased confidence levels in August.

London, the East of England, and the West Midlands experienced improvements, and although businesses in Wales reported a 13-point decline in confidence, it remains among the joint third most confident regions/nations.