Business leaders delay investment amid fear of continued recession and “ineffective” Government

Published on Wednesday, 22 August 2012 12:19
Posted by Scott Buckler

New opinion polling of 1,277 members of the Institute of Directors (IoD) reveals the damaging impact of low confidence in the prospects for growth in the British economy, and concern over the effectiveness of the Government's reform agenda

The poll is the latest in the IoD's Policy Voice studies of business opinion in the UK.

Weak economic prospects

The Policy Voice panel expressed serious concerns that the recession will continue for the rest of the year:

  • Asked whether overall GDP growth in 2012 would be higher or lower than in 2011, the panel overwhelmingly expect growth to be lower by a margin of 52% to 19%. 28% expect growth to be the same
  • Similarly, 65% of the panel think there is a low or zero probability of the UK emerging from recession in 2012, compared with only 7% who think there is a high or very high probability of the recession ending this year
  • IoD members do believe that the second half of 2012 will show some improvement, with 52% expecting growth to be higher than in the first half of the year, compared with 22% who expect growth to get even worse

The impact of low confidenceThis lack of confidence in short term economic performance has knock-on effects on how business behaves:

  • 44% of the business leaders polled report that they had postponed at least one investment or employment decision in 2012 on account of uncertainties in the business or economic environment
  • Of those who postponed decisions, 76% had delayed decisions on business investment and 65% had held off deciding on matters of employment
  • 40% of the postponed business investment decisions have now either been taken or will be by the end of 2012, while 58% will be delayed until at least 2013Similarly, 46% of the delayed employment decisions are either now underway or will be resolved by the end of the year, while 51% will not be dealt with until 2013 at the soonest

Ineffective Government reforms

This poll asked business leaders for their views on the success of the Coalition's reform measures, including on taxation, regulation, education and infrastructure. When asked if they thought the Government's reforms had been effective or ineffective, business leaders felt they had been ineffective in every area – though it should be borne in mind that for some of the policy areas in question, reform can take several years to take effect. Reforms to the planning system were deemed to be the least ineffective, whilst the Government had struggled most at reducing tax complexity.

Graeme Leach, Chief Economist at the Institute of Directors, said: Business is battening down the hatches in the expectation that the recession will continue for the rest of the year. That is bad news for the economy at large, because decisions to invest money or take on more staff are being postponed until things look up. Low confidence leads to delayed decisions, and delayed decisions further undermine economic confidence – it’s a vicious cycle. At the same time, the Government’s reform agenda is pointing in broadly the right direction, but the overwhelming opinion of our members is that they are doing too little, too slowly. If the Coalition wants to break this cycle of low economic confidence, then they need to take some bold steps that will make a real difference to the cost and complexity of doing business in the UK.”


Source: ©IOD

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