UK business optimism slumps despite rise in output, orders and jobs

Firms are less optimistic about their prospects than they were six months ago as rising costs significantly squeeze their profit margins, according to the latest CBI/RDA survey of Regional Economic Trends.

Despite increases in orders, output, employment and prices, employers report their margins fell significantly in the year to September and expect them to shrink further in the year ahead.

The only firms to maintain their margins were in London, as average prices in the capital keep pace with rising costs.

Employers believe that staff costs and higher energy prices will be the main sources of increased costs in the coming six months. The factors cited as the most likely to inhibit growth were red tape, transport costs and inadequate support from government.

The twice-yearly survey, produced by the CBI and the Regional Development Agencies, covers all sectors of the economy, including public sector organisations. More than 2,600 companies responded from across England and Scotland.

The balance of employers optimistic about the general business situation – those expecting an improvement over the next six months – has fallen back from +12 in April to +7 in September. The South West (+17) and North East (+14) were the most positive regions – while confidence in the North West fell from +19 to -1.

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Staff costs were cited by 41% of firms as the main upward cost pressure facing firms over the next six months (the same figure as in April) and were the number one cost concern for seven of the 10 regions.

Doug Godden, the CBI’s head of economic analysis, said: “It is pleasing that orders, output and jobs have increased over the past year. The majority of regions have shared in this growth and more of the same is expected in the year ahead. Nevertheless, optimism about the overall business situation has slipped, most likely because of the tight squeeze on profit margins, and cost pressures clearly remain a key concern going forward.”