Business sentiment in 'relatively depressed place' as company chiefs eye rate cut

But IoD says many bosses remain optimistic about the prospects for their own organisations.

In the coming months, the Bank of England, above, will be considering its next step in terms of interest rates.

Business sentiment ended the year in a “relatively depressed place” having shown signs of a rebound since the spring, according to the Institute of Directors.

After gradually ticking up since its low point of -30 in June 2023, the IoD Directors’ Economic Confidence Index, which measures business leader optimism in prospects for the UK economy, fell back to -28 in December from -21 in November. However, despite the decline in the headline indicator, leaders’ confidence in their own businesses rose to +36 in December, from +30 the month before.

In addition, both revenue and export expectations nudged higher in December. Net outlook for revenue for the next 12 months, compared to the previous 12 months, increased from +37 in November to +42 in December, while the net outlook for exports rose from +15 to +20.

Today’s release also revealed that other underlying indications were broadly flat. Business investment expectations held at +23, roughly on a par with November. Expectations for costs and wages remained at +74 and +69 respectively and headcount expectations were broadly the same at +24.

Roger Barker, director of policy at the Institute of Directors (IoD), said: “Director sentiment ended the year in a relatively depressed place. According to our members, it has been more or less stuck in the doldrums since last summer. Although aspects of the business environment have improved in the last couple of months, particularly with regard to inflation, this is not yet exerting a meaningful impact on business decision-making.

“Business leaders remain extremely cautious about the outlook for the wider economy over the next 12 months, although they are more optimistic about the prospects for their own organisations.”

He added: “In the coming months, the Bank of England will be considering its next step in terms of interest rates. Based on the evidence of this survey, an early cut in interest rates would be justified in terms of helping to kick-start business confidence. With inflationary pressures abating, business is in dire need of a boost if it is to help drive meaningful economic growth in 2024.”