Businesses confidence slumps as Burnham prepares for power
Ministers must prioritise delivery over “changes in the machinery of government” if business confidence is to recover, one of Britain’s top lobby groups has said, in a warning to Andy Burnham as he prepares to shake-up Whitehall and shift power to the North of England.
In its monthly business confidence survey, the Institute of Directors found that bosses’ economic sentiment dropped sharply this month as bosses. The reading for optimism on the UK economy over the next 12 months fell to -61 from -53 in May. Company directors were also gloomier about their own businesses’ prospects and future sales, with revenue expectations dropping to the lowest level this year.
Economists have said that businesses are still reeling from the breakdown in trade across the Strait of Hormuz, the critical chokepoint in the Middle East that was blocked off due to the Iran war. Bank of England analysis has shown that the hit to customers’ demand and rise in input prices could leave businesses battling against inflation and low growth for the rest of the year.
Anna Leach, chief economist at the IoD, said disruption and uncertainty were “becoming normalised” for 80 per cent of companies, and ministers should reduce complexity in the tax system and cut regulatory costs to ease the burden.
“As well as easing back on investment and hiring, this is pushing businesses to prioritise resilience over expansion, maintain higher reserves, reduce discretionary spend, diversify their supply chains and enhance their risk management,” Leach said.
“While there is a logic to changes in the machinery of government, what matters is delivery on the ground. Businesses need to see meaningful improvements in areas like regulatory cost, tax complexity and swiftness and consistency of government decisions to fundamentally unlock spending and get growth going.”
Warning to Burnham
The IoD’s comments signal a warning to Burnham after he outlined plans to create a Number 10 in the North and devolve power away from London.
According to the survey, cost expectations also held steady despite a sharp fall in the price of oil and gas earlier this month due to the announcement of a draft peace deal between the US and Iran. It was hoped that the deal could ease price pressures and prevent inflation from spiralling.
Firms remained nervous about shortages due to a breakdown in trade across the Middle East as 43 per cent of leaders surveyed said scarcity could affect operations.
Fuel shortages were the biggest risk for businesses, with a higher proportion of directors raising concern about the impact than in April, the IoD found. The group represents thousands of senior executives across Britain.
Lloyds sends warning on domestic business confidence
The IoD’s results largely reflected findings in Lloyds Banking’s business barometer, which also showed that confidence levels declined.
International firms responding to Lloyds’ survey were more optimistic about growth prospects, according to researchers, as their optimism in the economy increased.
Business confidence was highest in London and the East Midlands, according to the bank, whose survey covers companies that have annual turnover above £250,000.