Bosses somber on economy but own prospects are up

British business chiefs remain somewhat gloomy about the prospects for the UK economy for the year ahead, although when it comes to their own firms are more positive picture emerges, despite the ongoing issue of skills shortages.

So says the IoD Directors’ Economic Confidence Index, which quizzes business leaders on how they view their prospects. It 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’.

The May figures show that 39% feel pessimistic compared to 33% who feel optimistic, giving an overall total of -6, little changed from the previous month’s value of -5 and ending a five-month climb from a low of -64 in November 2022.

When asked about current pain points for their organisation, the most common concerns were UK economic conditions (52%), with skills shortages/employee skills gaps (46%) not far behind, along with the cost of energy (45%). These were the same top three concerns as the last survey.

However, when it comes to the prospects for their own organisations, the index of director confidence rose to +44 in May, up from +42 in April. Some 55% expect revenues to rise in the next year, compared to 19% who expect revenues to fall, giving a net positive result of +36, similar to the +37 recorded in April.

There were further reasons for optimism in recruitment, too. Some 35% expect to increase their headcount in the next year, compared to 14% who expect to reduce it, giving a net positive result of +21, similar to the +22 recorded in April.

In addition, 38% expect to raise levels of investment in their business in the next year, compared to 17% who expect to reduce it, giving a net positive result of +22, continuing the steady improvement from +18 in March and +20 in April.

Institute of Directors chief economist Kitty Ussher said: “Confidence improved in the first few months of the year as business leaders began to believe that the outlook for the UK economy, although difficult, was not as bad as they had previously been led to believe. Our confidence index is now stabilising at a just-below neutral stance, similar to that recorded before the invasion of Ukraine.

“Although investment intentions are picking up and our members are broadly planning for growth it will take a greater sense that the worst is behind us before confidence really starts to lift.”

Deployteq CEO Sjuul van der Leeuw added: “Once again, the skills crisis tops the league table of issues hampering growth and causing frustration to business owners. In a rapidly changing digital world, building a workforce adept in AI, coding and analytics is a key differentiator for companies looking to maintain the competitive advantage.

“However, many businesses are still operating expensive and ineffective manual systems across key functions like marketing and sales, meaning staff are under huge pressure to develop their skillset to keep up with the pace of the market.

“Forward thinking organisations will look to implement the right technology platforms to liberate workers, giving them access to powerful tools to improve their performance and fulfil their potential without having to enrol on a coding course.”