Business confidence marching upwards, but policy action needed to really shift the dial
The IoD Directors’ Economic Confidence Index, which measures business leader optimism in prospects for the UK economy, rose to -17 in February 2023, up from -28 the previous month and a near-record low of -64 in November. Confidence in the UK economy is now similar to the time of the Omicron restrictions in December 2021.
When those who said they were pessimistic about prospects for the UK economy were asked to pinpoint the main reason why, the most popular answers in February were political instability (26%), difficulties in our trading relationship with the EU (23%) and the rate of inflation (18%). The main reason for the improvement is lessening concern about the rate of inflation.
The index of confidence in business leaders’ prospects for their own organisations also improved in February, rising to +41, up from +37 in January. Leaders of mid-sized companies, employing between 50-249 people, felt the most confident about their own organisation’s prospects; the smallest and largest were the least confident.
When asked about negative issues facing their organisation, the main concern was the UK economy (cited by 51%), closely followed by skills shortages (49%) and the cost of energy (43%).
A third of IoD members (33%) now believe ‘inflation has already peaked’, up from a quarter (24%) in January. However, a sizeable majority remain of the view that the peak is still to come, even though CPI inflation actually peaked back in October 2022.
Kitty Ussher, Chief Economist at the Institute of Directors, said:
“Business sentiment is improving from its historic lows, driven primarily by a growing sense that prospects for inflation are improving and the economy is proving more resilient than previously feared. However, it still remains in negative territory with more business leaders pessimistic about the economy than optimistic.
“In order to really shift the dial, what’s needed is a clearer sense of direction from government, continued improvement in our relationship with the EU and proof beyond doubt that inflation is back under control.
“While sentiment remains subdued, government policy will need to work harder to encourage businesses to put capital at risk to undertake the investment the economy needs. That’s why we’re urging the government to prioritise investment incentives in the forthcoming Budget.”
Full survey results
859 responses, conducted between 10-26 February 2023
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 | 3.4% | 26.9% | 22.6% | 34.3% | 12.5% | 0.3% |
| Your (primary) organisation | 11.4% | 44.9% | 27.4% | 13.4% | 2.3% | 0.6% |
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 | 402 |
| Political instability in the UK government | 25.9% |
| Difficulties in the UK’s trading relationship with the EU | 22.6% |
| The rate of inflation in the UK | 17.9% |
| Falling customer demand in the UK | 9.2% |
| The international price of energy | 5.7% |
| Supply chain problems affecting the UK | 3.5% |
| Don’t know | 0.2% |
| Other (please specify) | 14.9% |
Which of the following factors, if any, are having a negative impact on your organisation?
| UK economic conditions | 51.3% |
| Skills shortages/employee skills gaps | 49.1% |
| Cost of energy | 42.5% |
| Global economic conditions | 27.5% |
| New trading relationship with the EU | 26.1% |
| Business taxes | 25.8% |
| Supply chain disruption | 23.9% |
| Compliance with Government regulation | 22.4% |
| Transport cost/speed/reliability | 20.7% |
| Employment taxes | 19.1% |
| Difficulty or delays obtaining payment from customers | 15.8% |
| Access to, or cost of, finance | 14.9% |
| Broadband cost/speed/reliability | 11.3% |
| Coronavirus outbreak | 9.5% |
| Other (please specify) | 8% |
| None of the above | 2.8% |
At what point, if at all, do you expect the rate of inflation in the UK to peak before starting to fall back again?
| Inflation has already peaked | 32.6% |
| Spring 2023 | 18.6% |
| Summer 2023 | 17.2% |
| Autumn 2023 | 10.9% |
| Winter 2023-2024 | 7.8% |
| Spring 2024 | 4.9% |
| Summer 2024 | 1.3% |
| Later than Summer 2024 | 2.0% |
| Never | 0.6% |
| Don’t know | 4.1% |
