Director Weekly  Better-than-expected GDP growth and an uptick in directors’ optimism are welcome signs of business resilience, but global instability and domestic policy uncertainty could make for a challenging autumn ahead

The first was the latest instalment of the IoD Directors’ Economic Confidence Index, which showed net optimism about the outlook for the UK economy rising to -49 in August, up from -63 in July. That’s the Index’s highest level since January.

Although expectations about directors’ own organisations dipped, there were some modest improvements in the underlying measures. Revenue expectations were up three points to +12, while investment intentions improved to -9 in August, from -13 in July.

Now we also have the ONS’s GDP estimate for July, showing growth of 0.4%. That follows growth of 0.3% in June and is well ahead of expectations that the economy would flatline.

It adds up to a welcome sense that the UK economy is proving relatively resilient during a challenging year. Overall performance compares well with other G7 nations, and the worst-case scenarios associated with the war in Iran have not come to pass – or at least, not yet. Renewed fighting has pushed oil back over $100 a barrel, raising inflationary risks as we head into autumn.

Could a new Prime Minister also be adding to this bounce in directors’ optimism? Well – no, actually. We asked directors how Andy Burnham and a new Cabinet had affected their outlook, and the net impact was negative: -21 for the UK economy and -23 for directors’ own organisations.

An explanation can be found in responses to a question on barriers to growth. The most damaging constraints highlighted in August were tax uncertainty (58%) and general policy uncertainty (55%): two factors likely to be exacerbated by political upheaval.

With that in mind, we were listening closely to John Healey’s speech on growth this week. His restatement that investment and growth remain the government’s key priority is encouraging. We also welcomed his reiteration of the value of fiscal discipline, and commitments to the Industrial Strategy, the deregulation target, and the extension of judicial review reforms.

Yet the real tests lie ahead. Healey says he wants to “draw a line” under previous cost rises on business, but their impact on growth and confidence cannot simply be wished away. And already, mere days later, we have seen mayors handed new powers to levy tourist taxes.

The Budget on 28 October will reveal the true extent of the government’s commitment to growth. We submitted the IoD’s Budget Submission to the Treasury this week, which included some key calls.

• Look again at policies that aren’t working. Prime examples are the Tax Roadmap and the Employment Rights Act. We support the goal of giving business more clarity about tax alongside employment rights that balance the needs of workers and business, but it’s not working.
• Go further on deregulation. The Chancellor’s words on deregulation were welcome but the current strategy is about making it easier to navigate existing rules, when many simply need to be scrapped – including those holding back housebuilding.
• Keep business needs in mind on devolution. Devolution could boost growth but its design and sequencing is critical. If businesses face a more fragmented and complicated policy landscape, devolution will strangle growth, not accelerate it.

How far the Chancellor addresses these priorities in October will tell us much about whether reality will live up to this week’s pro-growth rhetoric.