Partner Article

Low business confidence creates “vicious cycle?, say directors

Low confidence in the economy could have a damaging impact on business, says a report from the Institute of Directors (IoD).

Business leaders expect to see little growth and have little optimism for an economic recovery out of recession before the end of the year, as the IoD ‘Policy Voice’ panel said that growth would be lower by at least 19%.

Findings show that a lack of confidence in economic growth has a tangible impact on businesses.

44% of company leaders said that economic doubt had led to hesitant business behaviour such as delaying investment or employment decisions.

While 65% of IoD’s panel said there was little to no chance of the UK emerging from recession before the end of 2012, there are worries of stagnation in the business and economic environment.

The number of employment and investment decisions being held off until 2013 are high, while directors said that 40% of delayed investment decisions and 51% of postponed employee appointments will not be dealt with until next year.

Business leaders criticised in ineffectiveness of Government reforms, and reported that changes made were unsuccessful across all sectors.

Graeme Leach, Chief Economist at IoD said: “Business is battening down the hatches in the expectation that the recession will continue for the rest of the year.

“That is bad news for the economy at large, because decisions to invest money or take on more staff are being postponed until things look up.

He commented that the combination of low economic confidence and delayed business decisions created a “vicious cycle”.

He continued: “the Government’s reform agenda is pointing in broadly the right direction, but the overwhelming opinion of our members is that they are doing too little, too slowly.

“If the Coalition wants to break this cycle of low economic confidence, then they need to take some bold steps that will make a real difference to the cost and complexity of doing business in the UK.”

Vince McLoughlin, partner at Russell New, commented: “The sharp decline in confidence amongst the Institute of Directors (IoD) comes as no surprise and it seems clear now that the recession is here to stay throughout 2012.

“Overall confidence has been hit by the significant fall in public spending not to mention the rise in public sector borrowing last month, which is traditionally a good month for the Treasury. The tax cuts may be helping but it is too little too late. It’s no good blaming previous governments and regimes anymore – that excuse is long past its sell-by-date.

“The government is almost pig headedly sticking to its Plan A and it is concerning that it is unable to adjust to economic conditions of its creating when evidence points to the need to react. The government must be bitterly disappointed with the slump in tax receipts in July, a traditionally strong month for its coffers.”

This was posted in Bdaily's Members' News section by Miranda Dobson .