Low confidence may derail positive growth forecasts, warns research

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Low business confidence could restrict the latest post-Brexit economic growth forecasts for 2017, according to new research. Working in partnership with the Centre for Economic and Business Research (Cebr), business consultancy Newable has identified that confidence is not only a by-product of economic performance, but also a significant indicator of, and contributor to it.

The company’s new ‘Gross Domestic Confidence’ study quantifies the economic value of business confidence. Its findings suggest that without strong business confidence, the UK’s economy will continue to miss out on opportunities to drive economic growth.

The research identified a 65% correlation between business confidence and employment growth, with a two quarter lag applied. Similarly, it established a 56% correlation between business confidence and business investment when a two quarter lag is applied. The Cebr calculated that low business confidence cost the UK economy £2.2bn in lost investment in 2016 and resulted in 249,000 fewer jobs being created.

The research comes at a time when the Bank of England has recently upgraded its UK growth forecast from 1.4% to 2%, but suggests that this greater level of predicted growth could be derailed by a lack of business confidence.

Chris Manson, CEO of Newable, said: “The Bank of England’s accelerated growth forecast for 2017 seems to be a positive step for the UK. However, most commentators admit that growth remains fragile. Our research shows that economic growth is predicated on positive business confidence. As a result, if UK businesses lack confidence, they may not take the positive decisions that translate into economic growth.

“There is real risk that individual businesses might be blown off course by the “white noise” emanating from large macro events like Brexit which continue to dominate the news agenda. However, our research into Gross Domestic Confidence proves that if we can inspire greater confidence by providing UK businesses with accessible financing, innovative expertise and practical assistance with exporting, this sense of self-belief will deliver a positive economic outcome for all concerned.”

Newable partnered with the Centre for Economic and Business Research (Cebr) to quantify the impact of business confidence on the UK economy. Data was taken from the long-established CBI Business Optimism Index, and it was compared to the data from the UK Government’s Office for National Statistics (ONS) then applying controls to identify the influence of other factors such as interest rates and GDP.

newable.co.uk