Rising interest rates weigh on business confidence but glimmers of hope remain
Business confidence remained subdued in September as the impact of rising interest rates weighed heavily on economic activity.
The Institute of Director’s economic confidence index came in at -26 in September, marginally higher than the reading of -28 in August, but still firmly in the red.
This was the fourth consecutive month in which economic confidence remained low following a large fall in June when it became clear that interest rates would rise further and faster than previously anticipated.
Interest rates now stand at 5.25 per cent, the highest level since the financial crisis.
Despite the low level of business confidence, order books were suggestive of “mild growth” with 42 per cent of firms saying orders had strengthened over the last three months compared to 28 per cent who said it had weakened.
Around half of businesses were also optimistic about their own prospects, with over a third planning to increase investment over the next year.
Kitty Ussher, chief economist at the IoD, said: “The shape of 2023 is now becoming clearer as the data comes in.
“The new year saw buoyancy and optimism as the recessionary fears from the end of last year receded. Then, as rising interest rates started to bite in June, there was a downward shift in the mood that persisted throughout Q3,” she said.
Although rising interest rates have weighed on activity, the Bank of England chose to leave rates on hold at its last meeting with most analysts suggesting the Bank would not have to hike again.
The decision came as growth in the UK has slowed, with some analysts suggesting the economy is already in recession. Survey data points to plunging economic activity over the coming months.