Is business confidence starting to slide?

According to two new business opinion surveys, the "credit crunch" and the weakening of the global financial markets has shaken business confidence in the UK.

Although there don't seem to signs of impending doom for the UK economy, it is perhaps inevitable that businesses have become more prudent and less bullish over the past few months.

The latest IoD Business Opinion survey paints a particularly gloomy picture of business confidence.

The proportion of directors more versus less optimistic, about their company’s prospects (compared to three months ago), fell to 4% in the latest survey from 24% previously. The fall in business optimism following the financial crisis, is greater than in the wake of 9/11.

According to another report - the Lloyds TSB Corporate Markets Business Barometer, business confidence during October fell for the first time since June as firms' perception of the general economy has weakened. The report suggests that there are early indications that economic growth has peaked.

The monthly survey, which has run since 2002, shows that the number of companies expecting their business activity to increase over the next year fell from 70% in September to 64% in October.

Additionally, the balance of companies feeling more rather than less confident about the state of the overall economy fell from 20% over 17%, representing the lowest balance of optimism since December 2006.

In the IoD survey, the proportion of directors more versus less optimistic, about the outlook for investment, fell to -3 per cent in the latest survey, from +17 per cent previously.

Trevor Williams, chief economist at Lloyds TSB Corporate Markets, said:

"These results indicate that UK economic growth is likely to slow in the final three months of 2007. However, although these signs of weaker business confidence are a concern, the MPC is not likely to make any knee-jerk rate cuts unless there is actual evidence of slower growth over a sustained period. Therefore, a rate cut is unlikely before February 2008."

Commenting on the Iod Business Opinion survey results, Graeme Leach, Chief Economist at the IoD said:

“This is a pretty gloomy survey with the decline in business confidence worrying. Thankfully, actual business performance remains high. Across the whole economy there is a real divide between the actual impact of the financial crisis to date and expectations of what it might bring in the future."

“The key question now is whether optimism will bounce back, because if it doesn’t, business investment could be hammered.”