Weak economic outlook holding back business investment says Institute of Directors

Jasper Jolly
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Firms are less likely to invest if economic prospects are weak (Source: Getty)

A weak outlook for the economy is holding businesses back from making investments, according to a new survey of business directors published today.

A balance of 18 per cent of directors are pessimistic about the prospects for the UK economy, according to a poll of the Institute of Directors (IoD) members.

That represents the third weakest level in the past year, despite a slight recovery in confidence since June’s General Election, which left the Conservative party shorn of a majority in the House of Commons.

Firms’ outlook on their own prospects for the next year remained stronger, with a balance of 28 per cent optimistic about their future performance. However, that is still markedly weaker than sentiment at last December’s peak, when a balance of 50 per cent of firms were confident.

Read more: Uncertainty is a large problem for small businesses

Yet despite the cautious confidence overall, fears over the economy appear to be holding back investment, with more firms saying they plan to reduce investment over the next year than say they will raise it.

The findings echo government data on private spending, which showed firms’ investment grew by only 0.5 per cent in the second quarter of 2017, after investment fell in 2016, according to Office for National Statistics data.

With a Conservative party divided over Brexit policy gathering at its conference in Manchester, the IoD urged chancellor Philip Hammond to take increasing business investment into account in the Budget, scheduled for 22 November.

Stephen Martin, director general of the Institute of Directors, said: “We know the Chancellor has a difficult balancing act to perform, but amongst all of the loud voices crying out for more help, we urge him not to ignore the businesses feeling hesitant about their investment decisions.”

The chancellor is facing clamour to increase spending as the Conservative party struggles to regain momentum from its disastrous showing in the General Election amid a period of weak economic growth and rising prices. However, the domestic policy agenda has taken a back seat compared to the implementation of Brexit.

Martin said: “Brexit is not an excuse for domestic inaction, but a jolt to make politicians enact reforms to boost the UK’s economic competitiveness.”

Read more: UK businesses are stuck in the middle with Brexit uncertainty

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