Directors’ confidence slides to new low in May

The May 2022 Directors’ Economic Confidence Index, which measures business leader optimism in prospects for the UK economy, slid to its lowest level since October 2020 of -45, down from -36 in April.

Of those that said they were pessimistic about the prospects for the UK economy, the overwhelmingly most frequent reason given for this pessimism was the UK rate of inflation (41%), followed by difficulties in the UK’s trading relationship with the EU (20%).

However, the index of confidence in business leaders’ prospects for their own organisations remained relatively high at +30 in May, down slightly from +32 in April.

In addition:

• ‘UK economic conditions’ continues to be the most commonly cited negative factor affecting business (50%), followed by the ‘new trading relationship with the EU’ (40%) and ‘global economic conditions’ (40%).
• Investment intentions have also fallen to a post-pandemic low, with almost as many firms saying they plan to reduce investment in the next year (22%) as raise it (25%).
• Inflation expectations are worsening, with only 28% now expecting inflation to be near the Bank of England’s 2% target before the end of 2023 (down from 33% in April).
• However business concerns about energy costs, although high, may have peaked: 38% stated that the cost of energy was having a negative impact on their organisation in May, down from 53% in March.

Kitty Ussher, Chief Economist at the Institute of Directors, said “Disappointment in the performance of the UK macroeconomy, in particular around inflation but also in the everyday impact of Brexit, is affecting the very real investment decisions of business leaders. We can now see a clear connection between the slide in the confidence that directors have in the UK macroeconomy and a trend of increasing caution around investment.”

“As a result, government will now need to work even harder over the next few months to get our economy feeling hopeful again, and their current consultation on the design of business investment incentives should be seen in this context.”