Business confidence weakens amid revived economic pessimism

Business confidence weakened in December as executives turned more pessimistic about the outlook for the British economy in 2024, a closely-watched survey suggests. 

The Institute of Directors’ economic confidence index, a measure of the difference between how optimistic and pessimistic bosses feel regarding the broader economy, declined from -21 in November to -28 last month.

Just over half of company bosses feel pessimistic, while 23.2 per cent expressed optimism and just 2.4 per cent of those surveyed ‘very optimistic’.

Yet the proportion who are confident of their own firm’s prospects increased to +36 in December, compared to +30 the previous month.

Both net turnover and export expectations increased by 5 points to +42 and +20, respectively, while forecasts on business investment, costs and wages, and staff levels remained flat and in positive territory.

Dr Roger Barker, the IoD’s director of policy, said sentiment among directors was ‘in a relatively depressed place’ and has ‘been more or less stuck in the doldrums since last summer’.

He added: ‘Although aspects of the business environment have improved in the last couple of months, particularly with regard to inflation, this is not yet exerting a meaningful impact on business decision-making.’

Barker suggested the Bank of England implement ‘an early cut’ in interest rates to help revive company confidence and economic growth.

The BoE hiked the UK base rate on 14 consecutive occasions from December 2021 to August 2023 – from 0.1 per cent to 5.25 per cent – in efforts to tame rampant inflation. 

Britain’s consumer prices index has tumbled to 3.9 per cent, having hit a four-decade high of 11.1 per cent in October 2022.

Meanwhile the UK economy has flatlined, with GDP contracting by 0.1 per cent in the third quarter of last year and treading water just 1.4 per cent above its pre-pandemic levels.

The Office for Budget Responsibility (OBR), which provides independent economic forecasts to the government, predicts that gross domestic product will expand by just 0.7 per cent this year.