March data shows a strongly growing UK economy

New data released today by the Institute of Directors suggests the UK economy grew strongly in March, confounding official forecasts from the Office of Budget Responsibility of a contraction in Q1.

Order books have strengthened considerably since the turn of the year, and expectations of future revenue, hiring and investment are also all pointing upwards.

Business sentiment has improved too, not only in terms of how business leaders view the prospects for their own organisations in the next 12 months but also in their assessment of prospects for the wider UK economy, although the latter remains in negative territory overall.

The data comes from the IoD’s most recent monthly survey of members that was live from 10-26 March and obtained a sample size of 915 members across all sectors of the UK economy.

Order books

Half of all firms (50%) reported in March that their order books had strengthened since the end of last year. Only 22% reported their order books had weakened. This gives a net positive score of +28, up from +8 in November 2022 and -2 in September 2022. Net positive scores are recorded in all parts of the economy, including consumer-facing sectors and manufacturing.

Sentiment

The IoD Directors’ Economic Confidence Index, which measures business leader optimism in prospects for the UK economy, rose to -13 in March 2023, its highest value since late 2021 and up from -17 the previous month.  Director confidence in prospects for their own organisations also rose, to +44 from +41 in February.

Business planning

• 61% of business leaders expect their revenues to grow in the next year, compared to 18% who expect revenue to weaken: a net positive score of +42%, up from +38% in February.
• 37% of business leaders expect to increase their headcount in the next year, compared to 15% who expect to reduce it: a net positive score of +23%, up from +18% in February.
• 38% of business leaders expect to increase investment in the next year, compared to 21% who expect to reduce it: a net positive score of +18%, up from +7% in February and the strongest result since November 2021.

Inflation expectations

However, the survey also showed that inflation expectations remain high. Only 28% of members said that they believed inflation had already peaked, down from 33% in February. 50% said they did not expect it to peak until the summer at the earliest.

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

“The data coming from our members is strongly suggestive of growth across all sectors in recent weeks. In particular, the strengthening of order books since the end of last year points to an economy performing better in Q1 than was anticipated as recently as the March Budget.

“While this is undoubtedly good news, strong demand also means that it may take longer than many forecasters currently expect for inflation to come within sight of the Bank of England’s target any time soon.”

 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 

915 responses, conducted between 10^th-26^th March 2023

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:

At what point, if at all, do you expect the rate of inflation in the UK to peak before starting to fall back again?

This question is about how demand for your organisation’s product or services has changed in the last three months; that is, since the end of last year. You might think of this as your order book, your work pipeline, sales volumes or the level of activity. Do you think demand for your organisation’s products or services has got stronger or weaker in the last three months, or has there been no change?