The IoD Directors’ Economic Confidence Index, which measures business leader optimism in prospects for the UK economy, fell back to -12 in August, following a three-year high of +7 in July 2024.
Business leader confidence in their own organisations also fell from +36 in July to +23 in August.
This reduction in confidence is also borne out in the underlying indicators:
- Business investment intentions for the year ahead dropped 14 points, from +24 in July to +10 in August – the sharpest decline since the beginning of the pandemic lockdowns
- Headcount expectations also dropped 14 points, from +24 to +10 – this was likewise the sharpest fall since the first pandemic lockdown
- Revenue expectations fell from +36 to +28 and cost expectations increased from +81 to +83
- Export expectations fell from +12 to +8 – the lowest since June 2023 (+8)
- Wage expectation also fell from +59 to +56.
Looking at the quarterly assessment of factors having a negative impact on business leaders’ organisations:
- UK economic conditions (56%) and Skills/labour shortages (43%) continue to be the most significant factors.
- Business taxes has risen to third place (41%, up from 33% in May), replacing Compliance with government regulation (37%).
- Employment taxes are now fifth highest, up from eighth in May (25% to 34%).
- Global economic conditions has fallen to eighth place, after being third in May (33% to 26%).
Anna Leach, Chief Economist at the Institute of Directors, said: “It’s disappointing to see last month’s welcome uptick in business leader confidence snuffed out over the summer. It is notable that the sharpest drops in our economic measures are in investment and headcount expectations, whilst other measures have moved to a lesser degree, albeit in a likewise negative direction. The newsflow in recent weeks on employment rights and Autumn tax rises has dented confidence in the environment for business in the UK.
“As we head into a busy Autumn, we are calling on the government to take time to get policy design right for the long-term, and deliver the stable tax and policy framework needed to drive business confidence and investment. Further clarity on the industrial strategy and the business tax roadmap, in conjunction with more progress in engaging with business on workers’ rights, would be welcome.”
The IoD Directors’ Economic Confidence Index measures the net positive answers from members of the Institute of Directors to the question ‘How optimistic are you about the wider UK economy over the next 12 months?’ on a five-point scale from ‘very optimistic’ to ‘very pessimistic’.
