Business confidence tumbles as economy trembles

Business confidence has plummeted by a record amount as fears persist the economy is set to contract in the final quarter this year.

The BCM Confidence Index collapsed from +8.1 in the third quarter to -9.7, according to the latest figures from ICAEW.

The index – a close indicator of GDP growth - is now at its lowest level since the nadir of the 2009 recession, fuelling concerns the economy will shrink by some 0.2% in the final quarter.

Growth for 2011 would therefore be 0.9% - a sharp drop on the 1.7% projected earlier this year.

The index revealed confidence across all business sectors has fallen, with just energy, water and mining remaining in positive territory at +2.3.

Weak property sector

The property sector is in the weakest position with confidence tumbling to -18.7, followed by banking, finance and insurance with -14.6.

Michael Izza, Chief Executive of ICAEW, said: "In the first nine months of the year, businesses have played their part in supporting economic growth.

"Many are proud of their success against a backdrop of a very slow and protracted recovery. Yet they are becoming increasingly worried about the immediate outlook and the risk of a double dip recession.

"They are looking to the Government which now needs to take urgent steps to restore business confidence and to show that it understands the need to rapidly change the mood that the business community clearly feels."

Turnover and profit growth expectations have now declined for two successive quarters, which has been compounded by a steep drop in capital investment growth expectations.

Headcount freeze

In total, more than three-fifths of UK companies are operating below capacity with the number of new employees expected to increase by just 0.9% as companies refrain from taking on new staff.

One ray of light was the BCM predicting – in line with the Bank of England – that the inflation rate will fall in 2012.