UK business confidence crashes as Omicron spread

Confidence among UK business leaders “plummeted” in December as the Omicron variant of the coronavirus shattered expectations the pandemic was almost over, while most administrators plan to pass soaring costs on to consumers, according to an investigation by a pressure group.

The Institute of Directors’ Economic Confidence Index – the proportion of directors who say they are optimistic about the UK’s economic outlook for next year minus those who are pessimistic – plunged to minus 17 in December, from minus six the previous month.

Kitty Ussher, chief economist at IoD, said “already fragile” business confidence in Britain’s macroeconomics “fell in December as the Omicron variant altered consumer behavior and dashed hopes the pandemic was on. behind us”.

The figure, which is based on interviews conducted between December 13 and 30, fully capturing the impact of the Omicron spread, was down from more than 27% in June and was the lowest score since November of last year, when most of the country was in lockdown.

The IoD is an organization without a political party, with around 20,000 members from most sectors, including CEOs of large companies as well as directors of start-ups.

The survey also showed that around three-quarters of admins said they expected costs to increase over the next 12 months, with a similar proportion saying they would either fully or partially increase prices to offset rising costs. . Only 6 percent of those polled said they would increase investments in areas designed to increase productivity in order to keep up with rising costs.

“We are now seeing widespread evidence of inflationary pressures ingrained throughout the economy with little reluctance on the part of business leaders to pass on increased costs,” Ussher said.

The figures reinforce expectations that UK inflation will still exceed the Bank of England’s 2 percent target in the coming months. In December, the bank raised interest rates from 0.1% to 0.25% – its first hike in more than three years – to fight inflation which hit a decade high of 5.1 % in November.

The plunge in confidence is expected to affect business investment, Ussher noted, as businesses “are less likely to undertake investments if the weather is uncertain.”

About 31% of directors still expect investment to be higher next year, in line with economists’ expectations of a rebound in business investment spurred by the super-deduction tax incentive to spend on facilities. and machines.

However, the proportion was two percentage points lower than in November, with a growing proportion of directors expecting less investment next year.

This is important because “we need this investment for the economy to grow,” Ussher said. Investment is a key driver of productivity growth.

More encouragingly, however, directors’ confidence in their own organization’s prospects remained stable, with around 54% feeling optimistic about their company’s prospects for the next 12 months in December, compared with 15% feeling optimistic about their company’s prospects for the next 12 months in December. pessimistic. This is similar to the values ​​recorded in November 2021.

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