Business confidence low but ‘pointing upwards’ in August

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.

Other key results from the IoD’s monthly survey are:

27% of firms are planning to increase business investment in the next 12 months compared to 23% who plan to reduce it.
30% of business leaders are planning to take on more staff in the next 12 months, compared to 14% who plan to reduce headcount.
52% expect their revenues to be higher in the next year, compared to 23% who expect it to be lower.

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.”

The IoD Directors’ Economic Confidence Index measures the net positive answers from members of the Institute of Directors to the question ‘How optimistic are you about the wider UK economy over the next 12 months?’ on a five-point scale from ‘very optimistic’ to ‘very pessimistic’.

New data points will continue to be made available on the first day of each month containing data obtained from a survey of IoD members that is in the field during the previous month.

Full survey results

702 responses, conducted between 5^th-30^th August 2022

How optimistic are you about both the wider UK economy and also your organisation over the next 12 months

	Very optimistic	Quite optimistic	Neither optimistic nor pessimistic	Quite pessimistic	Very pessimistic	Don’t know
Wider UK economy	2%	13%	19%	41%	24%	0%
Your (primary) organisation	8%	38%	37%	14%	3%	0%

You said you were pessimistic about prospects for the UK economy. Which, if any, of the following factors best describes the reason you said you were pessimistic? Please select one response.

Total	458
The international price of energy	9%
The rate of inflation in the UK	32%
Political instability in the UK government	24%
Falling customer demand in the UK	7%
Supply chain problems affecting the UK	5%
Difficulties in the UK’s trading relationship with the EU	10%
Don’t know	0%
Other (please specify)	14%

Comparing the next 12 months with the last 12 months, what do you believe the outlook for your organisation will be in terms of:

	Much higher	Somewhat higher	No change	Somewhat lower	Much lower	Don’t know
Revenue	10%	42%	24%	19%	4%	1%
Cost	27%	59%	11%	2%	1%	0%
Business investment	6%	21%	49%	16%	7%	1%
Employment	3%	27%	55%	12%	2%	1%
Employee wages	11%	55%	30%	2%	1%	1%