Dramatic Collapse In Business Confidence

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The IoD’s Directors' Economic Confidence Index collapsed from -4 in February 2022 to -34 in March 2022, the lowest level since October 2020.

Investment intentions have also fallen back, with the net proportion of firms planning to increase investment falling from +14% in February to +2% in March.

Over half (53%) of business leaders say that the cost of energy is exerting a negative impact on their organisation, three times as many as a year ago (14% in March 2021).

Confidence among business leaders in the prospects for their own organisation has also fallen sharply from a net positive score of +39% in February to +23% in March.

Inflation expectations

Expectations of inflation continue to rise, with over half (51%) of business leaders expecting annual inflation to be running at higher than 6% by the end of 2022, up from 18% as recently as January.

Four in ten (39%) business leaders continue to report that employment taxes are exerting a negative impact on their organisation, up from 25% before the increase in national insurance came into play.

There are also early signs that labour market pressures may be alleviating, with slightly fewer respondents expecting wages and, separately, employment levels to rise, and a small reduction in those saying that skills shortages are exerting a negative impact on their organisations.

 “Business has experienced a dramatic collapse in confidence following the invasion of Ukraine, leading to many firms putting investment plans on hold. The reality of higher energy and commodity prices, plus the hike in employment taxes, all overlaid with a general climate of deep uncertainty, is now having a real economic impact.”

– Kitty Ussher 

Chief Economist, Institute of Directors

Urgent

“The Chancellor has said he will look again at tax incentives for business investment over the next few months. That work has now become even more urgent,” adds Ussher.

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’.

Picture: The business confidence graph is plummeting.

Article written by Cathryn Ellis
07th April 2022

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