Firms shelve investment and likely to lift prices
Companies have shelved plans to invest as confidence in profitability has taken a “significant knock”, according to a new survey.
Almost a third (28%) of firms expect profits to fall said the British Chambers of Commerce whose latest analysis showed key economic indicators “flashing red”.
More than four out of five of the 5,700 firms questioned cited inflation as a big concern. Two-thirds of firms expect their prices to rise in the next three months.
Declining confidence in business performance has affected plans to increase investment, with three in four of those questioned saying they have no plans to do so.
Three quarters of companies had no plans to increase investment in machinery or equipment.
Shevaun Haviland, director general of the Chambers of Commerce, said: “The red lights on our economic dashboard are starting to flash. Nearly every single indicator has seen a deterioration since our last survey in March.
“Business confidence has taken a significant hit and fears over inflation and cost pressures are at new record highs.
“But it is not too late for the Government to take action to help businesses through these challenging times and put the economy on a more stable footing.
“A cut in VAT on energy bills to 5%, and other steps to relieve the tax burden on firms to encourage investment are crucial.
“Better infrastructure, a plan to address labour shortages and a unified long-term economic strategy to give businesses more certainty are also needed.
“The Government must swiftly demonstrate that it is on the side of business if confidence to invest is to be restored.
“Only then will we be able to return some momentum to the economy and find a pathway through the current difficulties.”
Stephen Barclay, the Downing Street chief of staff, shares the call for wants a cut in the 20% headline rate, while other ministers believe it will merely fuel inflation.
Paul Johnson, head of the Institute for Fiscal Studies, has argued against a VAT cut, saying it would pump extra money into an economy already struggling with an excess of demand over supply.
“Stimulating demand at the moment would be economically inappropriate. On this one the Treasury is right,” he said.
Alistair Darling cut inflation from 17.5% to 15% immediately after the financial crisis in 2008 which was credited with helping the economic recovery, though the circumstances were different. Inflation was not an issue and unemployment was rising