Political instability pushed economic confidence to near rock bottom in October

The IoD Directors’ Economic Confidence Index, which measures business leader optimism in prospects for the UK economy, fell back to -60 in October, reversing the slight gains it had made over the summer months. In September the index recorded a value of -43.

Of the 73% of members who said they were pessimistic about the prospects for the UK economy, around half (49%) stated ‘political instability in the UK government’ as the reason for their pessimism compared to one in five (20%) who cited ‘the rate of inflation in the UK’. This is the first time that political instability has been a stronger driver of economic pessimism than inflation.

However, there were cautious signs of optimism elsewhere in the data.

• The index of confidence in business leaders’ prospects for their own organisations rose slightly to +25%, up from +20 in September
• 54% expect their revenues to be higher in the year ahead (23% lower)
• 34% expect to employ more people (16% fewer)
• 29% expect to increase investment in the next 12 months (23% reduce)

Cost pressures remain extremely high, with 84% expecting costs to rise in the next year and only 4% expecting costs to fall.

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

“Political instability meant our headline economic confidence indicator hit near rock bottom in October but, conversely, this may provide an opportunity going forwards. With a new ministerial team in place, the hope is to now push that mechanism into reverse, so that improvements in political stability can lead to greater economic confidence.

“In fact, our more granular data already shows a slightly more positive picture, with expectations around revenue, employment and perceptions of our members’ organisations own prospects all up a little in the last few weeks and not dissimilar to pre-pandemic trends. If macroeconomic confidence improves, then we would expect investment intentions also to rise, even if the headline economic growth rate remains subdued. Overall, therefore, the new administration has everything to play for.”

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 

656 responses, conducted between 10th-27th October 2022

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

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

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.