The continuing Eurozone crisis has caused a sharp fall in confidence among senior business leaders and the possibility of a second banking crisis is weighing heavily on corporate sentiment, the CBI said today (Sunday).
On the eve of its flagship Annual Conference, the CBI revealed the findings of new research carried out on its behalf by Ipsos MORI. Telephone interviews were conducted with senior business figures from the FTSE 350, and privately and foreign-owned companies of a similar size operating in the UK.
Of the 122 business leaders who took part, seventy per cent said their level of confidence in the economic outlook had fallen since the beginning of August.
Interestingly, only 30% of business leaders believe their company’s prospects have deteriorated, with a majority (57%) saying they’ve stayed the same, and around one-in-ten (11%) saying they’ve improved.
However, six out-of-ten (59%) are likely to revise their business strategy: 38% are changing workforce plans; 33% are reviewing investment plans; 30% are revising expansion plans; and 28% are altering their financial plans. Nearly two-fifths (39%) are not making changes, but some are planning to ‘wait and see’ before reaching decisions.
John Cridland, CBI Director-General, said:
“The survey shows that business confidence has been hit by the Eurozone crisis and fears of a second banking crisis in 2012, so firms are revising their investment and employment plans.
“Business leaders believe the Government is right to stick to its deficit reduction strategy, but that it must go hand-in-hand with some fresh thinking and a more creative growth strategy.”
Despite the sharp fall in confidence and the increase in economic uncertainty, 82% of business leaders are firmly behind the Coalition Government’s deficit reduction strategy and do not believe that it should be scaled back. As one business leader put it, “The single most important thing is to ensure the UK economy remains credible to the financial markets in the world – credibility is key.”
When asked which specific areas the Chancellor should focus on in his autumn statement to stimulate growth, if he has room for manoeuvre, 80% said investment in infrastructure should be a priority, followed by cutting employment taxes (57%), business taxes (48%) and income taxes (42%).
Mr Cridland said:
“Infrastructure investment, employment and business tax cuts, and reviving the housing market – business leaders want the Government to prioritise these measures to stimulate growth.
“We’re at a critical tipping point, with the Eurozone crisis reaching a crescendo and UK GDP growth forecasts being revised down. The Chancellor needs to use his autumn statement to boost business confidence with game-changing new ideas.”
In 2012, business leaders believe that the most serious risks to their business will be volatility in financial markets (37%), lack of domestic demand (36%) and rising costs (23%).
The sovereign debt crisis in the Eurozone is seen by 70% as the biggest single factor likely to impact on the UK economy in 2012, and the possibility of a further banking crisis cited by 67%.
Ian McCafferty, CBI Chief Economic Adviser, said:
“Looking ahead to 2012, business leaders are clear about the issues they believe will have the biggest influence on the UK economy. External factors dominate, with seven-out-of-ten citing the Eurozone crisis, and two-thirds a further banking crisis.
“When asked about specific risks to business in 2012, financial market volatility was expected to be the most significant, perhaps unsurprising given the current turmoil.”
Business leaders were asked what single Government action would most improve the outlook for UK business going into 2012. Recommendations included:
- Improve the flow of credit
- Develop a credible growth strategy
- Clarify all aspects of energy policy
- A clear strategy which achieves business and consumer confidence
- Encourage business confidence so firms reinvest the surplus cash they are sitting on
- More support for exporters
- More investment in infrastructure