Confidence grows among UK businesses, but productivity continues to stall

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The confidence of UK company directors has shown a sharp increase in the wake of last month’s general election – but the nation’s productivity continues to stagnate.

Data released by the Institute of Directors (IoD) reveals confidence has sparked sharply in the wake of the poll on December 12, which saw Boris Johnson’s Conservative Party secure a comfortable majority.

An IoD poll of 952 company directors showed post-election confidence stood at positive 21%, up from negative 18% prior to the election. This amounts to the sharpest swing ever recorded by the IoD, and the first time confidence has stood in positive territory since before the EU referendum in 2016.

Tej Parikh, the IoD’s Chief Economist, believes a number of government business pledges have contributed to the surge.

Parikh said: “A firm majority Government means that business leaders, whatever their personal views, now at least have a framework around which they can put in place plans to invest, hire, and expand.

“Plans to increase and broaden R&D tax credits are a positive move, as is the commitment to lower business rates and invest in the skills system.

“For the longer-term, ambitious proposals on broadband, infrastructure, and regional growth are music to the ears of many in the business community who want to finally see the dial shift on the UK’s lagging productivity growth.

“Clearly, however, the uncertainty surrounding the UK’s long-term relationship with our largest trading partner remains a cause for concern.

“Our members’ confidence has proven sensitive to Brexit developments over the past few years, and this is likely to continue during negotiations in the year ahead.”

The growth in confidence was accompanied by a significant increase in leaders’ investment intentions for the coming 12 months.

Despite this, however, new productivity statistics for Q3 showed growth of just 0.1% on the same quarter one year earlier.

Parikh added: “The UK’s lacklustre productivity performance goes on, laying bare the challenge facing the new Government.

“A long period of uncertainty has sapped business leaders’ confidence to invest in the equipment and technology they need to drive productivity growth. Meanwhile, talent shortages and bottlenecks in our infrastructure have constrained our ability to catalyse economic activity.

“The UK’s decade-long struggle to raise its productivity game has in turn restrained wage growth.

“The Government’s spending ambitions for our broadband and transport networks offer some hope for uplift down the line. But long-term capital investments must not displace efforts to jump-start improvements to our business environment today.

“We need to provide investment incentives for SMEs, slash red tape, and widen access to training opportunities to boost productivity in the here and now.”

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