Business confidence in the UK economy stabilises “just below neutral” in May

The IoD Directors’ Economic Confidence Index, which measures business leader optimism in prospects for the UK economy, stabilised at -6 in May 2023, little changed from the previous month’s value of -5 and ending a five-month climb from a low of -64 in November 2022.

The current reading is a broadly neutral-to-negative stance, with 39% of IoD members feeling pessimistic about prospects for the UK economy in the year ahead compared to 33% feeling optimistic over the same time horizon.

When asked about current pain points for their organisation, the most common concerns were UK economic conditions (52%), skills shortages/employee skills gaps (46%) and the cost of energy (45%). These were the same top three concerns as the last time that question was asked in February 2023.

The IoD conducts its member surveys monthly and publishes the results of the 1^st of each month, providing the most-timely indication of business sentiment in the UK economy. In May the sample size achieved was 1026.

The more detailed indicators of the business environment are suggestive of broad economic growth:

• The index of director confidence in future prospects for their own organisations rose to +44 in May, up from +42 in April.
• 55% expected revenues to rise in the next year, compared to 19% who expected revenues to fall, giving a net positive result of +36, similar to the +37 recorded in April.
• 35% expected to increase their headcount in the next year, compared to 14% who expected to reduce it, giving a net positive result of +21, similar to the +22 recorded in April.
• 38% expected to raise levels of investment in their business in the next year, compared to 17% who expected to reduce it, giving a net positive result of +22, continuing the steady improvement from +18 in March and +20 in April.
• 20% of all IoD members expected their levels of exports to increase in the next year compared to 7% who expected exports to fall, a net positive result of +13, up a little from the +11 recorded in April.

There was also a slight improvement in inflation expectations, with 33% stating they believed inflation had now peaked, up from 25% in April. However, given the annual rate of CPI inflation actually peaked back in October 2022, this result remains stubbornly low.

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

“Confidence improved in the first few months of the year as business leaders began to believe that the outlook for the UK economy, although difficult, was not as bad as they had previously been led to believe.  Our confidence index is now stabilising at a just-below neutral stance, similar to that recorded before the invasion of Ukraine.

“Although investment intentions are picking up and our members are broadly planning for growth it will take a greater sense that the worst is behind us before confidence really starts to lift.”

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 

1026 responses from across the UK, conducted between 12^th-29^th April 2023. 16% ran large businesses (250+ people), 17% medium (50-249), 20% small (10-49 people), 32% micro (2-9 people) and 14% sole trader and self-employed business entities (0-1 people).

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?