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2:05 AM 1st August 2022
business

IoD: Inflation, Our Relationship With Europe And Political Instability All Contribute To Low Business Confidence In July

Image by Lorenzo Cafaro from Pixabay
Image by Lorenzo Cafaro from Pixabay
The July 2022 Directors’ Economic Confidence Index, which measures business leader optimism in prospects for the UK economy, remained very low at -54 in July, but was a slight rise from the value of -60 recorded in June.

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 (29%), the difficulties in the UK’s trading relationship with the EU (18%) and political instability in the UK government (17%).

The index of confidence in business leaders’ prospects for their own organisations remained in positive territory but fell in recent months. In May it was +30, in June it was +23 and in July it fell further to +19.

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

A clear downward trend in investment intentions since the start of the year, with as many firms now planning to reduce investment as planning to increase it, the lowest response since October 2020.
Employment intentions remaining reasonably positive: more business leaders (31%) plan to grow their teams in the next 12 months compared to those who plan to reduce them (17%).
Similarly, more organisations (41%) report that their order books have grown in the last few months than report they have shrunk (30%).
Over half (52%) of business leaders cited economic conditions in the UK as having a negative impact on their organisation. The next two most-cited pain points were the cost of energy (51%) and skills shortages (45%).

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

“Perceived risks in the macroeconomy continued to drive the behaviour of business leaders in July, with concerns around inflation, our relationship with the EU and political instability causing investment intentions increasingly to be put on hold.

“However, while there are weaknesses in some areas, our data still indicates growth across the economy as a whole. More firms are seeing order books strengthening than weakening and most of the reported difficulties are on the supply side rather than due to a significant deterioration in customer demand.

“Of more concern is the recent weakening in confidence that business leaders are expressing in prospects for their own organisations for the year ahead, albeit from a high base. This is one to watch in future months.

“Overall our data shows how important it is that the new political leadership team that is established in the autumn sets out a clear economic strategy, that includes stronger investment incentives, to improve confidence and counteract the risks of investing in a time of economic uncertainty.”


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

671 responses, conducted between 13th-28th July 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% 15% 44% 25% 0%
Your (primary) organisation 8% 34% 34% 21% 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 465
The international price of energy 9%
The rate of inflation in the UK 29%
Political instability in the UK government 17%
Falling customer demand in the UK 10%
Supply chain problems affecting the UK 7%
Difficulties in the UK’s trading relationship with the EU 18%
Don’t know 0%
Other (please specify) 10%

Which of the following factors, if any, are having a negative impact on your organisation?

New trading relationship with the EU 42%
Compliance with Government regulation 31%
Business taxes 33%
Employment taxes 35%
Broadband cost/speed/reliability 18%
Cost of energy 51%
Global economic conditions  43%
Difficulty or delays obtaining payment from customers 17%
Skills shortages/employee skills gaps 45%
UK economic conditions  52%
Coronavirus outbreak 24%
Transport cost/speed/reliability 27%
Cost/availability of finance 10%
Supply chain disruption 28%
Other (please specify) 4%
None of the above 1%
Don't know/Not applicable  0%

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 8% 44% 25% 18% 5% 1%
Cost 21% 63% 13% 2% 0% 1%
Business investment  5% 21% 48% 19% 7% 1%
Employment 2% 28% 54% 11% 3% 1%
Employee wages 11% 58% 27% 1% 1% 1%

This question is about how demand for the products or services your organisation produces has changed in the last few months; that is, since the Spring of 2022. 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 few months, or has there been no change?

Much stronger 11%
A bit stronger 30%
No change 28%
A bit weaker 21%
Much weaker 9%
Don’t know 1%