A fallback in optimism, slower output growth and a weakening of order books are all contributing to the slowdown, according to the IoD.
In the three months to June, it pointed to a ‘general retrenchment in activity, optimism and expectations’ since the IoD’s last poll in March.
As a result, performance is at its lowest level since the current IoD survey started in March 1996.
Even though the majority of respondents reported that their companies were still performing well, the index has now been sliding for 12 months. The balance of companies which were more, rather than less, optimistic about their company’s prospects – compared to the previous quarter – in June was 23% compared to 40% in March.
Output growth is also down – it is now at its lowest since December 1998. Forward indicators, both total order books and export order books, were modestly weaker.
The survey results for whole economy profits were broadly unchanged and fairly weak. Price pressures remain weak, with many more respondents reporting increased costs than increased prices.
But there was some good news for the manufacturing sector. It continues to underperform the general economy but the IoD found evidence that the gap between manufacturing and the rest of the economy is narrowing.
Ruth Lea, head of the policy unit, said the results were ‘disappointing’. She added: ‘Even though we expect some recovery in the world economy this year, it is likely to be a rocky year.
‘The continual bursting of stock market bubbles, exacerbated by a partial loss of confidence in parts of the US corporate sector in the wake of the Enron and WorldCom scandals, is hanging over the business sector and can only damage business confidence further.’
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