Business confidence on the slide, but long term optimism remains

The latest National Business Survey shows that business confidence across the UK has been unsurprisingly shaken over the past year - with other half those surveyed expecting the economic climate to deteriorate for the next 12 months. This compares to just over 1 in 10 who expect the business climate to improve.

The responses of over 5,000 companies across England and Northern Ireland shows construction, hotels and catering and distribution companies are less confident than those in other industries.

However, whilst business confidence remains low and employers indicate that their workforces will grow less quickly and costs will rise more rapidly going forward, long range business optimism is still evident, with increased capital investment intentions (+9% on balance*). Companies have also indicated they will increase investment in the training of their workforces (+13% on balance*) and in product and process development (+14% on balance*).

Across England and Northern Ireland, 55% of businesses feel confident that their employment levels will remain the same in the next 12 months. This is in line with the 54% of companies nationally who had reported no decline in employment in the last 12 months.

Businesses have clearly felt significant pressure on their profitability over the last 12 months, and 45% reported lower profit margins compared to just 15% who reported higher margins. Transport and energy were confirmed to be the main upward pressure on a firms cost base with around 8 in 10 citing increasing costs across these two categories over the last 12 months.

Businesses have responded to these challenges by increasing the prices they charge to customers, with 45% stating that prices charged were higher in the past 12 months compared to 11% stating that prices were lower.

Going forward, businesses in England and Northern Ireland expect to face a difficult trading environment over the next 12 months with slowing domestic order books and rising costs, specifically in energy and raw materials, limiting scope for further price increases and putting margins under more pressure than seen in 2007.

Simon Foy, Chief Economist for Yorkshire Forward speaking on behalf of the RDA National Network said: "The findings of this survey indicate that whilst businesses are facing difficult times in the short and medium term, in the long term they are retaining positive investment plans.

As a network we will continue to work with our region's businesses on key issues to ensure that all business sectors are well equipped to manage the current tightening economic climate."

* The balance refers to the proportion of businesses who expect to spend more on investments over the next 12 months versus the proportion who expect to be spend less on investments over the next 12 months.