British business leaders’ confidence “tumbled” in December as the Omicron coronavirus variant broke expectations that the pandemic was almost over, while most directors plan to pass on rising costs to consumers, according to a lobby group survey.
The Institute of Directors’ economic confidence index – the percentage of directors who say they are optimistic about the UK’s economic outlook for next year minus those who are pessimistic – fell to minus 17 in December, from minus six in the previous month.
Kitty Ussher, chief economist at the IoD, said the “already fragile” business confidence in the UK macroeconomics had “taken a turn for the worse” in December when the Omicron variant changed consumer behavior and shattered hopes that the pandemic was behind it. “.
The figure, which is based on interviews conducted between 13 and 30 December, thus fully capturing the impact of the distribution of Omicron, was lower than plus 27 per cent in June and was the lowest score since November last year, when the most of the country was in lockdown.
The IoD is a non-partisan political organization, with approximately 20,000 members from most sectors, including general managers of large corporations as well as directors of start-up companies.
The survey also showed that about three-quarters of the directors said they expected costs to increase in the next 12 months, with a similar ratio saying they would increase prices in whole or in part to offset the increase in costs. Only 6 percent of respondents said they would increase investment in areas designed to increase productivity to tackle rising costs.
“We are now seeing widespread evidence of inflationary pressures entrenched throughout the economy with little hesitation on the part of business leaders to pass on increased costs,” Ussher said.
The figures reinforce the expectation that UK inflation will rise further above the Bank of England’s 2 per cent target in the coming months. In December, the bank increased interest rates from 0.1 percent to 0.25 percent – its first upward move in more than three years – to tackle inflation, which rose to a decade-high 5.1 percent in November.
The plunge in confidence is likely to hit business investment, Ussher noted, as companies “are less likely to invest when the climate feels uncertain”.
About 31 percent of directors still expect investment to be higher next year, in line with economists’ expectation of a recovery in business investment, reinforced by the super-deduction tax incentive to spend on plant and machinery.
However, the ratio was two percentage points lower than in November, with a rising percentage of directors expecting investment to be lower next year.
It matters because “we need that investment for the economy to grow,” Ussher said. Investment is a key driver for productivity growth.
More encouraging, however, is that directors’ confidence in the prospects for their own organization has remained steady, with about 54 percent feeling optimistic about their company’s prospects for the next 12 months in December, compared with 15 percent feeling pessimistic. This is similar to the values recorded in November 2021.