Inflation, our relationship with Europe and political instability all contribute to low business confidence in July
The July 2022 Directors’ Economic Confidence Index, which measures business leader optimism in prospects for the UK economy, remained very low at -54 in July, but was a slight rise from the value of -60 recorded in June.
Of those that said they were pessimistic about the prospects for the UK economy, when required to choose the main reason for their pessimism, the most popular responses were the rate of inflation in the UK (29%), the difficulties in the UK’s trading relationship with the EU (18%) and political instability in the UK government (17%).
The index of confidence in business leaders’ prospects for their own organisations remained in positive territory but fell in recent months. In May it was +30, in June it was +23 and in July it fell further to +19.
Other key results from the IoD’s monthly survey are:
- A clear downward trend in investment intentions since the start of the year, with as many firms now planning to reduce investment as planning to increase it, the lowest response since October 2020.
- Employment intentions remaining reasonably positive: more business leaders (31%) plan to grow their teams in the next 12 months compared to those who plan to reduce them (17%).
- Similarly, more organisations (41%) report that their order books have grown in the last few months than report they have shrunk (30%).
- Over half (52%) of business leaders cited economic conditions in the UK as having a negative impact on their organisation. The next two most-cited pain points were the cost of energy (51%) and skills shortages (45%).
Kitty Ussher, Chief Economist at the Institute of Directors, said:
“Perceived risks in the macroeconomy continued to drive the behaviour of business leaders in July, with concerns around inflation, our relationship with the EU and political instability causing investment intentions increasingly to be put on hold.
“However, while there are weaknesses in some areas, our data still indicates growth across the economy as a whole. More firms are seeing order books strengthening than weakening and most of the reported difficulties are on the supply side rather than due to a significant deterioration in customer demand.
“Of more concern is the recent weakening in confidence that business leaders are expressing in prospects for their own organisations for the year ahead, albeit from a high base. This is one to watch in future months.
“Overall our data shows how important it is that the new political leadership team that is established in the autumn sets out a clear economic strategy, that includes stronger investment incentives, to improve confidence and counteract the risks of investing in a time of economic uncertainty.”
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’.
New data points will continue to be made available on the first day of each month containing data obtained from a survey of IoD members that is in the field during the previous month.
Full survey results
671 responses, conducted between 13th-28th July 2022
How optimistic are you about both the wider UK economy and also your organisation over the next 12 months?
| Very optimistic | Quite optimistic | Neither optimistic nor pessimistic | Quite pessimistic | Very pessimistic | Don’t know | |
| Wider UK economy | 2% | 13% | 15% | 44% | 25% | 0% |
| Your (primary) organisation | 8% | 34% | 34% | 21% | 3% | 0% |
You said you were pessimistic about prospects for the UK economy. Which, if any, of the following factors best describes the reason you said you were pessimistic? Please select one response.
| Total | 465 |
| The international price of energy | 9% |
| The rate of inflation in the UK | 29% |
| Political instability in the UK government | 17% |
| Falling customer demand in the UK | 10% |
| Supply chain problems affecting the UK | 7% |
| Difficulties in the UK’s trading relationship with the EU | 18% |
| Don’t know | 0% |
| Other (please specify) | 10% |
Which of the following factors, if any, are having a negative impact on your organisation?
| New trading relationship with the EU | 42% |
| Compliance with Government regulation | 31% |
| Business taxes | 33% |
| Employment taxes | 35% |
| Broadband cost/speed/reliability | 18% |
| Cost of energy | 51% |
| Global economic conditions | 43% |
| Difficulty or delays obtaining payment from customers | 17% |
| Skills shortages/employee skills gaps | 45% |
| UK economic conditions | 52% |
| Coronavirus outbreak | 24% |
| Transport cost/speed/reliability | 27% |
| Cost/availability of finance | 10% |
| Supply chain disruption | 28% |
| Other (please specify) | 4% |
| None of the above | 1% |
| Don’t know/Not applicable | 0% |
Comparing the next 12 months with the last 12 months, what do you believe the outlook for your organisation will be in terms of:
| Much higher | Somewhat higher | No change | Somewhat lower | Much lower | Don’t know | |
| Revenue | 8% | 44% | 25% | 18% | 5% | 1% |
| Cost | 21% | 63% | 13% | 2% | 0% | 1% |
| Business investment | 5% | 21% | 48% | 19% | 7% | 1% |
| Employment | 2% | 28% | 54% | 11% | 3% | 1% |
| Employee wages | 11% | 58% | 27% | 1% | 1% | 1% |
This question is about how demand for the products or services your organisation produces has changed in the last few months; that is, since the Spring of 2022. You might think of this as your order book, your work pipeline, sales volumes or the level of activity. Do you think demand for your organisation’s products or services has got stronger or weaker in the last few months, or has there been no change?
| Much stronger | 11% |
| A bit stronger | 30% |
| No change | 28% |
| A bit weaker | 21% |
| Much weaker | 9% |
| Don’t know | 1% |
