Economic confidence 'nosedives'

07-01-2008

Economic confidence 'nosedives'
Business confidence in the UK economy plummeted in December 2007, the latest research has shown.

Lloyds TSB Corporate Markets says last month its business barometer reached its worst level for five years.

It found that the proportion of firms feeling pessimistic about the British economy rose by 23 points to 51 per cent.

Furthermore, the balance of businesses feeling more optimistic than pessimistic over the nation's finances slumped to minus 17 per cent.

In November the barometer reading had stood at plus 16 per cent, while in August – a month before the Northern Rock affair – the balance was plus 32 per cent.

The ruining of Northern Rock at the hands of the global credit crunch is seen as a key driver of pessimism in the UK economy, with the Bank of England forced into a surprise interest rate cut in December.

Lloyds TSB now predicts further rate cuts in 2008. Its chief economist Trevor Williams explained: "While there has been a steady trend towards economic pessimism during the last four months, firms became far more cynical in December.

"This would indicate the UK is set for a period of below-trend growth but the Bank of England's decision to start cutting interest rates could still reverse the spiral."

Mr Williams added: "Although slower house price growth and tight credit markets have undoubtedly weakened economic growth, more cuts in official interest rates in the first quarter of 2008 should restore some of the lost optimism among UK companies."

While overall confidence in the UK economy suffered in December, today's survey does reveal a rosier outlook over businesses' own fortunes, with the barometer showing a rise of three points to 50 per cent.

Lloyds TSB Corporate Markets attributes this to newfound hope for exports and buoyancy in the service and industrial sectors.

"The strengthening of the euro and sterling's subsequent rise in competitiveness have enhanced expectations for exports," continued Mr Williams.

"This, in addition to UK firms' progress in meeting growing emerging market demand for goods and services, has boosted confidence. Only distribution sector firms are less confident about their own activity, a likely fallout from their dependence on the UK market."

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