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IoD press release IoD Economic Confidence Index for January shows Omicron fears have passed

The IoD’s Directors’ Economic Confidence Index for January 2022 is back to the levels seen in October and November at -6. This means slightly more business leaders are pessimistic about prospects for the UK economy in the next 12 months than are optimistic, but is up from the tumble that it took in December (-17) during the height of Omicron fears.

However, investment intentions do appear to be falling. In the last three months, the proportion of business leaders who said they intend to raise investment in the next 12 months has fallen from 37% to 29%, while the proportion saying they intend to reduce investment has risen from 15% to 19%.

Expectations of inflation have also risen considerably. 61% of IoD members now expect annual inflation to remain higher than 4% at the end of 2022 (in November the equivalent figure was 45%).

A massive 81% now expect their costs to rise in the next 12 months, up from 74% in December:

  • 41% say that employment taxes are having a negative effect on their organisation, up from around 25% before the government announced its intention to raise national insurance contributions.
  • 42% say that the cost of energy is having a negative effect on their organisation, the highest recorded value since the question was first asked in January 2019.
  • 63% expect wages to rise in the next 12 months.

More positively, concerns around transport and global economic conditions appear to be improving:

  • 30% said that ‘global economic conditions’ are having a negative effect on their organisation, down from 36% in October.
  • 24% said that transport issues are having a negative effect on their organisation, down from 30% in October.

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

“It is great news that the increased pessimism about prospects for the UK economy that we picked up in December appears to have passed, as the threat from Omicron has receded.

“However, business leaders are still nervous about the economy in the coming year, particularly the impact of inflation, payroll and energy costs.  The risk is that these concerns about the wider economy become self-fulfilling if firms don’t feel it’s the right time to invest for growth. We are already seeing a possible early sign of scaled-back investment intentions and we will be watching this very carefully in the months ahead.”

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’.

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 

671 respondents, conducted between 13th-28th January 2022

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%
30%
25%
30%
10%
0%
Your (Primary) Organisation
8%
47%
28%
12%
3%
1%

What do you think the annual rate of inflation will be by the end of this year? 

Less than zero (i.e. prices will fall)
0%
Between zero and the Bank of England's target of 2%
1%
Around the Bank of England's target of 2%
3%
Between the Bank of England's target of 2%, and 4%
32%
Between 4% and 6%
43%
Higher than 6%
18%
Don't know
2%

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

New trading relationship with the EU
37%
Compliance with Government regulation
36%
Business taxes
33%
Employment taxes
41%
Broadband cost/speed/reliability
21%
Cost of energy
42%
Global economic conditions
30%
Difficulty or delays obtaining payment from customers
18%
Skills shortages/employee skills gaps
40%
UK economic conditions
40%
Coronavirus outbreak
50%
Transport cost/speed/reliability
24%
Cost/availability of finance
11%
Other (please specify)
8%
None of the above
2%
Don't know / Not applicable
1%

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
10%
49%
23%
14%
4%
1%
Cost
16%
65%
16%
2%
0%
1%
Business Investment
6%
24%
51%
14%
4%
2%
Employment
4%
31%
53%
9%
2%
1%
Employee Wages
9%
54%
31%
3%
1%
2%

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