The confidence of businesses in the UK experienced a decline in June as mounting fears emerged regarding the Bank of England’s efforts to tackle rising inflation, according to a report from the Institute of Directors (IoD).
The IoD’s economic confidence index plunged to -31 in June, marking a drop from May’s minus six. The downturn reached its lowest level since December, following the political turmoil of the previous autumn, according to a Bloomberg report.
The survey was conducted during the latter half of June, coinciding with a surge in mortgage rates, higher-than-anticipated inflation for the fourth consecutive month, and the unexpected move by the Bank of England to raise interest rates by half a percentage point to 5%.
Investors are now anticipating that the Bank of England may further raise its key lending rate to as high as 6.25% by December. This significant jump raises concerns about the possibility of a recession in the UK economy.
“The surge in optimism and investment plans that we’ve witnessed in recent months came to a shuddering halt in June as business leaders took stock of worse-than-expected inflation data and what that means for interest rates and prospects for the economy overall,” said Kitty Ussher, chief economist at the IoD, as quoted by Bloomberg.
“Many investment plans that had only recently been dusted down are now being put on hold again.”
The IoD report emphasises the growing concern over sticky prices and their impact on the economy. Among directors who expressed pessimism about the future, a third attributed their concerns to inflation, while 19% blamed declining customer demand. The deteriorating situation has also led to a decline in investment intentions.
While the UK managed to avoid a recession, concerns are resurfacing as financial conditions tighten.
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