2023-07-02 06:17:17
Business confidence in the UK declines following the inflation shock
UK business confidence suffered a sudden collapse in June as concerns mounted regarding the Bank of England’s monetary policies to tame inflation.
The Institute of Directors said in a report on Saturday, published by “Bloomberg” agency, that the private economic confidence index fell to minus 31 from minus 6 in May, the lowest level since December following the political turmoil last fall.
The survey was conducted during the second half of June when the rise in mortgage rates intensified, inflation was higher than expected for the fourth consecutive month and the Bank of England shocked the markets by increasing interest rates by half a percentage point to 5 per cent.
Investors are now betting that the Bank of England will raise its key lending rate to 6.25 per cent by December, a jump that threatens to tip the British economy into recession.
“The optimism and investment plans we have seen in recent months came to a dreadful halt in June, as business leaders took stock of worse-than-expected inflation data and what that meant for interest rates and the broader outlook for the economy,” said Katie Usher, chief economist at investment firm IoD.
“Many recently launched investment plans are now being put on hold once more,” she added. The survey shows how quickly the economic outlook is affecting UK markets.
Confidence indicators were improving before the markets were rocked by inflation readings for April and May. The IoD company said in a statement that there are growing concerns regarding fixed prices and their impact on the economy.
A third of respondents indicated that they are pessimistic regarding the outlook for inflation as their main concern, while 19 per cent blamed lower customer demand and the deteriorating picture for lowering investment intentions.
The UK managed to avoid a recession that was widely expected. However, concerns are rising once more with monetary policy tightening.
Bloomberg Economics expects the UK to enter recession by the end of the year, even if interest rates peak at 5.75 per cent.
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