UK business confidence tumbles as Omicron spreads

UK enterprise leaders’ confidence “took a tumble” in December because the Omicron coronavirus variant punctured expectations that the pandemic was practically over, whereas most administrators plan to move on surging prices to shoppers, in accordance with a foyer group survey.

The Institute of Administrators’ financial confidence index — the proportion of administrators saying they’re optimistic in regards to the UK financial outlook over the following yr minus these which are pessimistic — plunged to minus 17 in December, from minus six within the earlier month.

Kitty Ussher, chief economist on the IoD, mentioned the “already fragile” enterprise confidence within the UK macroeconomy “took a tumble in December because the Omicron variant altered shopper behaviour and dashed hopes that the pandemic was behind us”.

The determine, which relies on interviews carried out between December 13 and 30, thereby absolutely capturing the impression of the unfold of Omicron, was down from plus 27 per cent in June and was the bottom rating since November final yr, when many of the nation was in lockdown.

Line chart of Net balance, % showing The UK directors' economic confidence index  fell

The IoD is a non-party-political organisation, with roughly 20,000 members from most sectors, together with chief executives of enormous companies in addition to administrators of start-up corporations.

The survey additionally confirmed that round three-quarters of administrators mentioned they anticipated prices to rise within the subsequent 12 months, with an analogous proportion saying they’d increase costs absolutely or partially to offset the rise in prices. Solely 6 per cent of respondents mentioned they’d enhance funding in areas designed to boost productiveness to sort out rising prices.

“We now see widespread proof of inflationary stress entrenched all through the economic system with little hesitation on the a part of enterprise leaders to move on elevated prices,” mentioned Ussher.

The figures reinforce expectations that UK inflation will surge additional above the two per cent goal of the Financial institution of England within the months forward. In December, the financial institution elevated rates of interest from 0.1 per cent to 0.25 per cent — its first upward transfer in additional than three years — to sort out inflation that rose to a decade excessive of 5.1 per cent in November.

The plunge in confidence is prone to hit enterprise funding, Ussher famous, as corporations “are much less prone to undertake funding if the local weather feels unsure”.

About 31 per cent of administrators nonetheless count on funding to be greater subsequent yr, consistent with economists’ expectation of a enterprise funding rebound boosted by the super-deduction tax incentive to spend on plant and equipment.

Nevertheless, the proportion was two share factors decrease than in November, with a rising proportion of administrators anticipating funding to be decrease subsequent yr.

This issues as a result of “we want that funding for the economic system to develop”, mentioned Ussher. Funding is a key driver of productiveness development.

Nevertheless, extra encouragingly, administrators’ confidence within the prospects for their very own organisation remained regular, with about 54 per cent feeling optimistic about their firm’s prospects for the following 12 months in December, in contrast with 15 per cent feeling pessimistic. That is just like the values recorded in November 2021.


Leave a Reply

Your email address will not be published.