IoD – Business confidence low but ‘pointing upwards’

The Institute of Directors. The Directors’ Economic Confidence Index, which measures business leader optimism in prospects for the UK economy, continued to register at a very low level of -50 in August, but is an improvement from the levels recorded in June (-60) and July (-54).

Of those that said they were pessimistic about the prospects for the UK economy, when required to choose the main reason for their pessimism, the most popular responses were the rate of inflation in the UK (32%) and political instability in the UK government (24%). Only 7% said falling customer demand in the UK was the reason for their pessimism.

The index of confidence in business leaders’ prospects for their own organisations also recovered to +28 in August, up from +19 in July.

Kitty Ussher, Chief Economist at the Institute of Directors, said:

“Business leaders, like the general population, are feeling apprehensive about the state of the UK economy, with particular concerns around costs and inflation. This puts a dampener on investment decisions.

“However, with a few months distance since the beginning of the war in Ukraine, more business leaders are now feeling optimistic about prospects for their own organisation than earlier in the year, and economic confidence, while still very low, is at least pointing upwards. Revenue expectations remain reasonable and more firms are planning to grow their teams than to reduce headcount.

“We can also see a connection between business leaders’ perceptions of instability in the UK government and their level of confidence in the macroeconomy. If the transition to a new Prime Minister plays out smoothly, it is therefore possible economic confidence could continue to inch upwards even as inflation remains stubbornly high.”