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IoD: Mood music on the economy is not sufficiently cheerful to reverse decline in confidence

01 Dec 2021


The IoD’s Directors' Economic Confidence Index remained unchanged at –6 in November 2021. This means that slightly more business leaders are negative than positive about future prospects for the UK economy, but the situation has stabilised following sharp falls in the early autumn.  

Investment intentions have fallen slightly from a net score of +22 in October to +18 in November. Indicators for future revenue and employment are also lower than the previous month, but expectations of costs (including wages) are slightly higher. An increasing number of respondents are also citing ‘cost of energy’ and ‘employment taxes’ as having a negative impact on their organisation, but the negative effect of the pandemic on firms is declining, albeit from a high base.

Nearly half (45%) of members expect inflation to be running at higher than 4% by this time next year, an 8 percentage point increase from last month (37%).

Business leaders who were not planning to raise levels of business investment were asked what single thing would cause them to change their mind. The single most popular answer was ‘stronger growth prospects for the UK economy’ (34%).

Kitty Ussher, Chief Economist of the Institute of Directors, said:

“The economy is now in a Catch-22 position: growth into 2022 depends critically on private sector investment, but many business leaders are nervous about committing that investment when the UK economic outlook remains uncertain.

“On the plus side, our economic confidence index stopped its fall in November, but with concerns around inflation, high energy prices, continuing staff shortages and the forthcoming rise in employers’ NICs, the mood music is not yet sufficiently cheerful to reverse the decline of previous months. Looking into December, businesses will be carefully considering the implications of the Omicron variant and we expect this to be reflected in the responses to our next monthly survey.”

The Directors’ Economic Confidence Index measures the net positive answers from its members to the question ‘How optimistic are you about the wider UK economy over the next 12 months?’ on a five-point scale from ‘very optimistic’ to ‘very pessimistic’.

The back series, including graph, is available from July 2016 here. New data points will continue to be made available on the first day of each month containing data obtained from a survey of IoD members that is in the field during the previous month.


Full survey results

580 respondents, conducted between 12th-29th November 2021.

How optimistic are you about both the wider UK economy and also your organisation over the next 12 months?


Very optimistic

Quite optimistic

Neither optimistic nor pessimistic

Quite pessimistic

Very pessimistic

Don't know

Wider UK economy

4%

32%

22%

31%

11%

0%

Your (primary) organisation

10%

46%

29%

12%

3%

0%

Comparing the next 12 months with the last 12 months, what do you believe the outlook for your organisation will be in terms of:


Much higher

Somewhat higher

No change

Somewhat lower

Much lower

Don't know

Revenue

9%

53%

21%

13%

4%

1%

Cost

13%

64%

19%

3%

0%

1%

Business investment

6%

27%

51%

11%

4%

2%

Employment

3%

28%

57%

11%

1%

1%

Employee wages

4%

58%

33%

3%

0%

1%

You said that you planned to keep the level of investment the same, or reduce it, in the next 12 months. Would any of the following cause you to decide to increase investment instead?

Total

380

Stronger growth prospects for the wider UK economy

34%

A tax super-deduction for investment in staff training and reskilling

11%

Allowing investment in accredited external training (including academic qualifications) to be set against tax

7%

Widening the uses to which apprenticeship levy training funds could be put

3%

Expand the scope of R&D tax credit system to give greater weight to digital innovation, for example new applications of cloud computing

12%

Reform of the business rate system to reward to reward investment in less affluent areas

3%

Reform of the business rates system to incentivise investment in buildings to reduce their carbon footprint

11%

Other (please specify)

20%

Which of the following factors, if any, are having a negative impact on your organisation?

Total

580

New trading relationship with the EU

39%

Compliance with Government regulation

34%

Business taxes

32%

Employment taxes

40%

Broadband cost/speed/reliability

23%

Cost of energy

38%

Global economic conditions

33%

Difficulty or delays obtaining payment from customers

18%

Skills shortages/employee skills gaps

42%

UK economic conditions

42%

Coronavirus outbreak

44%

Transport cost/speed/reliability

30%

Cost of/access to finance

9%

Other (please specify)

3%

None of the above

3%

Don't know/Not applicable

1%

What do you think the annual rate of inflation will be by the end of next year? That is, by the end of 2022.

Total

580

Less than zero (i.e. prices will fall)

0%

Between zero and the Bank of England's target of 2%

4%

Around the Bank of England's target of 2%

7%

Between the Bank of England's target of 2%, and 4%

42%

Between 4% and 6%

37%

Higher than 6%

8%

Don't know

2%


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