UK business morale drops as concerns over tariffs, economy mount

LONDON (Reuters) -British business sentiment fell to its lowest level in three months and employers were concerned about implications of U.S. tariffs and the wider economy as they grapple with higher employment costs, two industry surveys showed on Wednesday.

The Lloyds Bank Business Barometer measure of confidence among companies fell by 10 points to 39% in April, the lowest since January when it stood at 37%, though it was still above its long-run average of 29%.

The survey's gauge of economic optimism fell by 13 points to 28%.

Hann-Ju Ho, senior economist at Lloyds Bank Commercial Banking, said the fall reflected concerns about the economy due to U.S. Donald Trump's tariffs and recent market volatility.

Britain's economy in February grew at the fastest pace in 11 months, but markets are focussed on Trump's trade war which Bank of England Governor Andrew Bailey warned last week would hit growth.

The headline inflation rate slowed to 2.6% last month, but the BoE expects it will reach around 3.7% later this year, nearly double its 2% target against a backdrop of rising household bills and higher labour costs.

Lloyds' gauge of price intentions increased in April, with 70% of businesses expecting to raise prices in the coming 12 months. Firms' own trading prospects declined this month.

A separate survey from the Confederation of British Industry, published on Wednesday, showed private sector output declined in the three month to April and is expected to fall again in the three months to July.

"Private sector activity remains subdued, with our surveys pointing to weaker economic momentum than implied by official data," Alpesh Paleja, CBI's deputy chief economist, said.

"Uncertainty has ramped up over the last few weeks, following the back-and-forth on tariffs levied by the US and, subsequently, big movements in financial markets."

The CBI said companies were expecting to reduce hiring due to higher employment costs, a rise in the minimum wage and the government's planned Employment Rights Bill.

(Reporting by Suban Abdulla, editing by Andy Bruce)