Wave of negative economic news undermines UK business confidence

The wave of negative news about the health of the UK economy has shaken business confidence.

A combination of supply chain hikes, soaring inflation, severe labor shortages and uncertainty over the trajectory of Covid-19 has pushed confidence levels back to highs by 27% in June, according to research by the Institute of Directors (IoD).

Optimism about the outlook for the UK economy fell from minus one per cent in September to minus six per cent in October.

Businesses have rebounded strongly after the UK lifted Covid-19 restrictions over the summer. However, supply chain disruptions triggered by a resurgence in global demand have increased costs and reduced inventory, prompting companies to cut production to minimize losses.

A shortage of workers has undermined the normal functioning of businesses across the country.

Kitty Ussher, chief economist at IoD, said: “Directors are still nervous about the state of the UK macroeconomics, unlike the exuberance of early summer, with October data continuing to show more pessimistic than optimistic about the outlook for the broader UK economy in the coming year.

Companies have stepped up their bets on wage increases over the next year, with nearly a third now expecting staff costs to rise.

Stepping up wage inflation expectations will be a cause for concern for the Bank of England ahead of its rate-setting decision on Thursday.

Barclays boss Jes Staley has said the government is ready to go 'way beyond' its initial £ 330 billion coronavirus business bailout

Companies tend to increase prices in the short term if they expect costs to increase in the future, which can cause workers to demand higher wages, generating a wage / price spiral that can leave savings behind. in the vise.

77% of business leaders believe costs will stay high in the long run, IoD said.

“There are encouraging signs that business leaders feel more positive about the prospects for their own businesses than last month, with consistent increases in investment and employment intentions,” Ussher added.

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