IoD - slump in business optimism

The Institute of Directors (IoD) was the bearer of bad tidings with the publication of its latest Business Opinion Survey which showed that business optimism has slumped and company performance weakened significantly in the first quarter of 2003.

The survey shows profits have deteriorated for UK businesses, and order books and investment intentions have crashed. Employment growth and output growth are also considerably weaker. The retrenchment in business activity that began in the middle of last year accelerated drastically in the first quarter of this year, the survey revealed.

The IoD is a well-established, non-party political independent organisation with around 55,000 members coming from a wide range and size of companies. As well as the smaller companies feeling the effects of the downturn themselves, the knock-on effects for freelancers of such pessimism among their client base is bound to impact on them.

Ruth Lea, Head of the Policy Unit at the IoD, said: "March's business opinion survey was far worse than we expected and well down on any of our recent surveys. All the major indicators of economic and business activity deteriorated. Several indicators, including optimism, orders and investment intentions, slumped. And this was especially true in the manufacturing sector.

"The survey was conducted during the early stages of the conflict with Iraq and it is very hard to judge just how much this affected sentiment. But, Iraq apart, the results are so bad that they do not suggest a rapid return to strong growth. There are simply too many negative factors around. One is the weak global economy. The US economy remains seriously unbalanced, but through sheer drive will recover. This cannot be said about Germany's weakness.

"Meanwhile, domestically, the Government persists in hampering business with more taxes and more red tape."

The balance of companies that were more, rather than less, optimistic about their company's prospects - relative to the previous quarter. Company performance was also well down and has been sliding since mid-2001. Even though the majority of respondents reported that their companies were still performing well, the balance of those companies performing well, minus those performing badly, was only 53 per cent in March 2003, compared with 60 per cent in December 2002 and 80 per cent in June 2001.

The results on capacity utilisation, order books, employment growth, output growth, profits and investment were all significantly weaker. There was not one indicator on economic and business activity that was not worse than in December.

Price pressures remained weak, with many more respondents reporting increased costs than increased prices putting a squeeze on margins.