Business confidence plunges on hung parliament

The first poll of business leaders since Thursday’s General Election reveals a dramatic drop in business confidence and huge concern over political uncertainty, and its impact on the UK economy. Company directors see no clear way to quickly resolve the political situation, feeling that a further election this year would have a negative impact on the UK economy.

Dr Diana Montgomery, Chief Executive of the Construction Product Association, said, “From a business perspective, this is frustrating.  We need certainty and clarity in order to address the serious challenges and opportunities facing UK construction over the next few years.  First and foremost of which is the prompt delivery of the government’s National Infrastructure and Construction Pipeline, which if delivered we believe will attract investment in UK based manufacturing.

“Government also has a leadership role in fixing its own procurement by using its ‘balanced scorecard’ approach to procure best value for government projects and using policy levers to address skills and housing shortages and the costs of energy and business rates to business.  It’s still early days and we will, of course, be ready to work with the new government and help find solutions, but I fear we’re now facing a period of greater instability at a critical time for our industry.”

The nearly 700 members of the Institute of Directors who took the survey are looking for any political certainty that can be found and are keen to see quick agreement with the European Union on transitional arrangements surrounding the UK’s withdrawal, and clarity on the status of EU workers in the United Kingdom.

The overall priority for the new Government, according to IoD members who have taken the survey since noon on Friday, must be reaching a new trade deal with the European Union. On the domestic front, work to deliver a higher skilled workforce and better quality infrastructure is considered vitally important.

Stephen Martin, Director General of the Institute of Directors, said, “It is hard to overstate what a dramatic impact the current political uncertainty is having on business leaders, and the consequences could – if not addressed immediately – be disastrous for the UK economy. The needs of business and discussion of the economy were largely absent from the campaign, but this crash in confidence shows how urgently that must change in the new Government.

“Business leaders will be acutely aware that parliaments without majorities are more prone to politicking and point-scoring than most. If we do indeed see a minority Government, both sides of the aisle must swallow their pride and work on a cross-party basis on the most important issues. The last thing business leaders need is a parliament in paralysis, and the consequences for British businesses and for the UK as an investment destination would be severe.

“Saying this, there is also little appetite for a further election this year, and indeed business leaders are keener to see the new Government get to work in Brussels and on the domestic front. Ensuring negotiations start well, and delivering higher quality skills and infrastructure across the country, must be the priority.”

The key findings of the survey:

  • 65% of IoD members believe uncertainty over the make-up of the Government is ‘a significant concern’ for the UK economy, with a further 27% describing it as a ‘slight concern’ – a total of 92% therefore believing it to be a concern;
  • While 20% are optimistic about the UK economy over the next 12 months, some 57% are now either quite or very pessimistic – a -37 ‘net confidence’ score. This compares with May, in which 34% registered their optimism, and only 37% reported pessimism – just -3;
  • A majority (59%) believe a further election later this year would be somewhat or very unwelcome. Only 23% felt a further election would be welcome;
  • Asked to choose three areas of Brexit negotiations which should be prioritised by the new Government, more than half – 58% – chose agreement on rights and entitlements for EU citizens in the UK and vice versa. In joint-second, negotiating an early agreement on transitional arrangements and securing ‘zero for zero’ tariffs were both chosen by 38% of business leaders;
  • Asked specifically about transitional arrangements, some 86% of business leaders felt striking a deal on that issue was ‘somewhat’ or ‘very’ important;
  • Asked to prioritise three policy areas for the new government, 72% chose ‘reaching a new trade agreement with the EU.’ Half – 49% – chose education, skills and training, and a further 35% chose modernising infrastructure.
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