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Directors' confidence improves, but investment and hiring intentions still in the red

04 Sep 2020

Business leaders’ confidence in their own organisations turned positive for the first time since lockdown, but hiring and investment intentions are stuck near all time lows, new figures from the Institute of Directors show.

Firms’ outlook for the year ahead rose to +10, having fallen to a nadir of -22 in April. Before coronavirus, the metric had never shown a negative reading in records going back to the Brexit referendum.

Directors’ confidence in the wider economy, which remained pessimistic, crept up but only to the third lowest reading since 2016, while businesses’ investment plans for the year ahead also remains in the red. Expected employment levels stayed in negative territory too, suggesting that more bad news on jobs could be yet to come.

The IoD said that the government should be careful not to phase out existing support too quickly, with more action needed in particular to support the jobs market, to address SME indebtedness, and to spur companies to invest. Policy suggestions from the Institute included:

  • Lowering employment costs: raising the employment allowance, and more generally lowering NICS costs for employers.
  • Investment incentives: providing tax reliefs for firms to encourage investment in productivity-enhancement and technology.
  • A Recovery Grant scheme, to supporting ongoing cashflow difficulties in SMEs, and for localised lockdowns.

Tej Parikh, Chief Economist at the Institute of Directors, said:

“We’re just starting to see a few green shoots, but firms are still in a great deal of difficulty. Lockdown lifting has given companies some room to manoeuvre, but with the virus still in circulation, there will be a lid on the economic recovery.

“With the furlough scheme drawing to a close, firms are being forced to make difficult decisions. While the Treasury wants to avoid freezing the economy in place indefinitely, it should act to support jobs more widely, by cutting employment tax.

“Production levels look set to rebound this quarter, but we’ll be making up for lost time on investment. We came into the crisis with a productivity problem and it won’t have gone away. Many companies will struggle to press on with projects given uncertain demand and uncomfortable balance sheets.”

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