Rate cuts needed to ‘kick start’ economy: UK business group
Business confidence in the UK economy ended 2023 sharply lower as falling inflation failed to boost optimism ahead of the new year.
According to the Institute of Directors’ Economic Confidence Index, optimism in the UK economy fell to -28 in December. This was down from -21 in November and close to the low of -30 it touched in June 2023.
The reading may come as a surprise given the progress on inflation seen over recent months.
The headline rate fell below four per cent in November for the first time in two years, prompting investors to start speculating that the Bank of England would cut interest rates in the first half of this year.
By the end of 2024, markets expect the benchmark Bank Rate to fall to four per cent. However, as yet, rate-setters at the Bank have insisted that it is too early to start discussing rate cuts.
“Although aspects of the business environment have improved in the last couple of months, particularly with regard to inflation, this is not yet exerting a meaningful impact on business decision-making,” Roger Barker, director of policy at the Institute of Directors, said.
“Based on the evidence of this survey, an early cut in interest rates would be justified in terms of helping to kick-start business confidence,” he continued.
Despite plummeting confidence in the wider economy, business leaders remained confident in the prospects for their own firms.
Business leaders’ confidence in their own businesses rose to +36 in December, up from +30 in November.
The outlook for both revenue and exports over the coming year improved on the previous month, as firms bet on an improvement on the demand side.