Written by: Keith Tully
Reviewed: Tuesday 18th July, 2017
Confidence among UK business about their prospects for the coming year reached a six-year low in recent weeks amid concerns about Brexit and rising inflation.
An index put together by the research and analytics firm IHS Markit put the UK’s business confidence level for June far below figures recorded early this year and lower than at any point since October 2011.
The index is created on the basis of expectations among British companies and specifically whether they anticipate seeing their activity levels rise or fall over the course of the coming 12 months.
In June, the index figure for overall business confidence was as low as +35 per cent, which was well down on the figure for February 2017, which was recorded at +52 per cent.
Consumer price inflation has become a major concern for economists and for employers in recent months with price rises generally outstripping wage increases across the country.
The latest figures on the UK’s headline rate of inflation show it having fallen from 2.9 per cent in May to 2.6 per cent in June.
However, a rate of 2.6 per cent still puts pressure on household finances and consumer spending, with concerns now widespread among businesses about the potential economic impact of the UK’s impending departure from the European Union.
A lack of clarity around the UK’s intended approach to Brexit is also regarded by IHS Markit’s experts as having hindered optimism among British businesses last month.
“Companies have become increasingly worried about the business outlook, largely as a result of heightened political uncertainties and the potential impact of Brexit,” said Chris Williamson, IHS Markit’s chief economist.
“The drop in confidence pushed the level of UK optimism below that seen in the eurozone for the first time in seven years, and contrasts with multi-year high levels of optimism in the United States and Japan,” he added.
Elsewhere, the latest EY Item Club report cited a loss of momentum in consumer spending as a key reason why it has decided to bring down its forecast of growth in the UK economy from 1.8 per cent to 1.5 per cent for 2017.
“The inflationary squeeze on consumers has been painful and shows little sign of easing any time soon,” said Peter Spencer, chief economic adviser to the EY Item Club.