Confidence in the British economy among top UK executives has been rocked by the fallout from last month’s General Election and continued uncertainty looming over the Brexit process.
Some 42 per cent of chief financial officers at the UK’s biggest companies have become less optimistic over the last three months, up sharply from just 17 per cent last quarter, according to a closely-watched survey published today by accountancy giant Deloitte.
Economic fears have spread in recent weeks as indicators reveal mounting evidence that output may be stuttering.
Investors sold the pound at the end of last week as government industrial production figures showed output expansion in May fell by 0.2 per cent year-on-year, while purchasing managers' indices (PMIs) showed growth slowing across the economy.
With inflation drifting further away from the Bank of England's two per cent target, businesses fear the squeeze on incomes could weigh on demand. Inflation has soared since the devaluation of sterling in the aftermath of the EU referendum more than a year ago.
Those effects may finally be showing in the broader economy, with British business output on the verge of contracting, according to an index compiled by the Centre for Economics and Business Research for accountants BDO.
The BDO output index, which collates data from more than 4,000 companies, fell to a four-year low of 94.9, below the 95 reading indicating the economy did not grow. The index for the dominant services sector, which makes up almost four-fifths of the British economy, fell to 94.4.
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Ian Stewart, chief economist at Deloitte, said: “Business sentiment has been on a rollercoaster in the last 18 months, slumping in the aftermath of the referendum, staging a strong recovery and then falling again in the wake of the General Election.”
British businesses are generally less optimistic than their counterparts in most other major developed economies, according to a survey by accountants Grant Thornton.
A positive balance of only 22 per cent of UK firms said they were optimistic, compared to a global reading of 51 per cent. Two years ago the same measure for the UK reached 79 per cent.
Federation of Small Businesses (FSB) national chairman, Mike Cherry, said: "In this climate of unprecedented uncertainty, many businesses are really starting to feel the squeeze."
However, the manufacturing sector continued to expand, with a reading of 97.6 in BDO's index, albeit below the long-term trend level indicated by the 100 level. Some parts of the economy have been boosted by the weaker pound, which has benefited exporters.
A survey of more than 1,000 firms by consultancy Capital Economics showed smaller companies remain confident on their own business prospects, despite a more difficult environment, with revenue growth expected to double to 1.7 per cent annually over the coming year.
Meanwhile, BDO’s measure of optimism, tracking company expectations for order-book growth, showed confidence actually increasing above the long-term trend.
Uncertainty has surged since the shock General Election result on 8 June, when the Conservative party lost its parliamentary majority. Some 43 per cent of the executives surveyed by Deloitte, who work for companies accounting for around a fifth of the UK stock market, say uncertainty is now high or very high.