The IoD’s Directors’ Economic Confidence Index has taken a tumble from -6 in November 2021 to -17 in December 2021.
- This represents a sharp deterioration from the September-November period and the index is now back to where it was a year ago as the third lockdown was coming into force.
- There are signs that this nervousness may affect investment decisions: whereas in November 33% of company directors said they expected investment to be higher in the next year and 15% expected it lower, by December the corresponding proportions were 31% higher and 18% lower.
- However, more encouragingly, directors’ confidence in the prospects for their own organisation remained steady, with around 54% feeling optimistic about their firms’ prospects for the next 12 months in December, compared to 15% feeling pessimistic. This is similar to the values recorded in November 2021.
- Separately, around three quarters (74%) of directors said they expected costs to rise in the next 12 months, of which most (72%) said they would raise prices to either fully or partially offset the rise in costs. Only 18% of firms experiencing cost increases said that they would keep prices the same, either by absorbing the cost increases or dealing with the issue in another way.
Kitty Ussher, Chief Economist at the Institute of Directors, said:
“Business confidence in the UK macroeconomy, which was already fragile, took a tumble in December as the Omicron variant altered consumer behaviour and dashed hopes that the pandemic was behind us. We now have significantly more business leaders feeling pessimistic about the UK economy in the next 12 months than feeling optimistic.
“This matters because firms are less likely to undertake investment if the climate feels uncertain, and we need that investment for the economy to grow.
“Separately, we now see widespread evidence of inflationary pressure entrenched throughout the economy with little hesitation on the part of business leaders to pass on increased costs through higher prices. Less than two in ten firms experiencing cost pressures said that they could keep prices the same.”