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An index that looks at the level of optimism in the UK among company directors took a significant hit in September as the country experiences a labour shortage and a fuel supply crisis.
The Institute of Directors’ (IoD) Economic Confidence Index for September was back to levels last seen in February 2021, at the height of the third lockdown.
It recorded a value of just under zero (-1%) in September, down from 22% in July. The UK's economic rebound from the pandemic was stronger than expected in the months from April to June, increasing by 5.5% compared with an estimate of 4.8%, the ONS recently reported.
But Kitty Ussher, the IoD's chief economist said “the business environment has deteriorated dramatically in recent weeks".
“Following a period of optimism in the early summer, people running small and medium-sized businesses across the UK are now far less certain about the overall economic situation and the IoD Directors’ Economic Confidence Index fell off a cliff in September.”
When 635 respondents were asked about the UK economy over the next 12 months, only 5% said they were 'very optimistic'. 11% said they were 'very pessimistic' and 28% said they were 'quite pessimistic'.
33% were 'quite optimistic'.
Some 75% of IoD members said they expected their costs to be higher in the next 12 months compared to the last 12 months, and 57% said they expected their revenues to be higher.
“A higher proportion of our members expect costs to rise in the next year than expect revenues to rise,” said Ussher.
She added that the government’s recent decision to raise employers’ national insurance contributions does not help as it “acts as a disincentive to hire just when the furlough scheme is ending.”
The £70bn ($94bn) furlough programme ended on Thursday after supporting millions of UK workers during the past 18 months.
Economists have warned that although many may find work in recovering sectors such as hospitality and travel, there is also likely to be a rise in unemployment due to new redundancies.
Meanwhile, the ongoing supply chain disruption and labour shortage has constrained growth in the UK manufacturing sector, new data has shown.
According to IHS Markit’s manufacturing purchasing managers' index, the rate of expansion last month fell to its weakest since February, hitting a seven month low.
Rob Dobson, IHS Markit director, said: “Companies are facing a growing list of headwinds, which includes declining new export orders, component shortages, delays to air, land and sea freight, staff shortages exacerbated by COVID-19 illnesses, Brexit disruptions, sharply rising costs and now fuel shortages.”
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