Business confidence is weakening due to a revival of economic pessimism

Business confidence weakened in December as executives became more pessimistic about the prospects for the UK economy in 2024, a closely watched survey found.

The Institute of Directors' economic confidence index, a measure of the difference between how optimistic and pessimistic bosses feel about the broader economy, fell from -21 in November to -28 last month.

Just over half of business leaders are pessimistic, while 23.2 percent are optimistic and only 2.4 percent of respondents are 'very optimistic'.

Still, the share who are confident in their own company's prospects increased to +36 in December, up from +30 the month before.

Both net sales and export expectations rose 5 points to +42 and +20 respectively, while forecasts for business investment, costs and wages, and workforce remained flat and positive.

Dr. Roger Barker, director of policy at the IoD, said sentiment among directors was “in a relatively depressed mood” and had been “more or less in the doldrums since last summer”.

He added: 'While aspects of the business environment have improved in recent months, especially on inflation, this has not yet meaningfully impacted business decision-making.'

Barker suggested the Bank of England make an “early cut” in interest rates to help restore business confidence and economic growth.

The BoE raised the UK base rate fourteen times in a row – from 0.1 percent to 5.25 percent – ​​between December 2021 and August 2023 in an effort to curb rampant inflation.

The UK consumer price index has fallen to 3.9 percent after hitting a four-decade high of 11.1 percent in October 2022.

Meanwhile, the UK economy has flattened, with GDP contracting by 0.1 percent in the third quarter of last year and still only 1.4 percent above pre-pandemic levels.

The Office for Budget Responsibility (OBR), which provides independent economic forecasts to the government, predicts gross domestic product will grow by just 0.7 percent this year.