Feel-good factor returns to UK business


A spate of new surveys suggest that the feel good factor is returning to UK business. But despite the increased optimism, manufacturing is still expected to shed some 30,000 jobs over the next few months.

Optimism and performance of UK companies has improved over the past three months, according to the latest quarterly report from the Institute of Directors (IoD).

The IoD’s research found that the balance of companies feeling optimistic about the year ahead stood at 38 per cent, up from 35 per cent three months ago. Businesses are now more optimistic about their future prospects than at any time last year.

The balance of those companies performing well versus those performing badly rose to 62 per cent in the latest survey from 53 per cent previously.

The report also highlights a dramatic improvement in investment confidence, with a balance of 26 per cent of businesses planning to invest in 2004, up from 18 per cent last quarter. A year ago the balance stood at minus 28 per cent.

Graeme Leach, chief economist at the IoD, said that the study gives cause for optimism.

“We believe there can be a successful re-balancing of the UK economy this year, with faster business investment growth and slower growth in household spending.

“The survey shows that business investment is set to accelerate, albeit at a slower rate than previous upturns,” he said.

The IoD’s findings are strongly echoed in the upbeat assessment of the economy painted in the Purchasing Managers Index from the Chartered Institute of Purchasing and Supply.

The study showed activity levels in the service sector during the month rising at the sharpest rate since June 1997.

The national business activity index was 59.2, well above the 50 'no change' level and indicating strong growth,

“Strengthening demand was reported in both the manufacturing and service sectors as improved business confidence contributed to increased client spending,” the report said.

And a third report, this time from the Confederation of British Industry (CBI), found that manufacturers across most regions of the UK reported an increase in new orders over the past three months and for the first time in over three years all regions expect output to rise over the coming months.

However it is still predicted that employment in the manufacturing sector will shrink, particularly in London and the South East. Some 29,000 manufacturing jobs are expected to go over the next three months.

Despite this, the level of business optimism amongst manufacturers showed marked improvements, except in the West and East Midlands and the East of England.

"There are now clear signs of a revival in manufacturing at the national level, with rising demand from overseas playing an important role," said Doug Godden, head of economic analysis at the CBI.

"But policy makers should take note of two facts. The recovery in demand has yet to spread to all parts of the UK, and the decline in manufacturing jobs, across the country, looks set to continue for a while yet."