The IoD Directors’ Economic Confidence Index, which measures business leader optimism in prospects for the UK economy, fell to -31 in June 2023, down from -6 in May, wiping out the improvements recorded since the beginning of the year.

The reasons for the drop are greater concerns around inflation and, separately, falling customer demand in the UK. Of those who were pessimistic about the UK economy in June. A third  cited ‘the rate of inflation in the UK’ as their main reason, up from 26% in January with 19% citing ‘falling customer demand in the UK’ as their main reason, up from 11% in January.

The index of business leader optimism in prospects for their own firms also fell between May and June, from +44 to +29. Firms are also more wary to commit to investment: net investment intentions fell from +22 in May to +11 in June.

Kitty Ussher, Chief Economist at the Institute of Directors, said: “The surge in optimism and investment plans that we’ve witnessed in recent months came to a shuddering halt in June as business leaders took stock of worse-than-expected inflation data and what that means for interest rates and prospects for the economy overall.

“With business confidence in the economy plummeting, many investment plans that had only recently been dusted down are now being put on hold again as business leaders consider whether the overall business environment is now too risky to be considering expansion.”

The IoD Directors’ Economic Confidence Index measures the net positive answers from members of the Institute of Directors to the question ‘How optimistic are you about the wider UK economy over the next 12 months?’ on a five-point scale from ‘very optimistic’ to ‘very pessimistic’.

New data points will continue to be made available on the first day of each month containing data obtained from a survey of IoD members that is in the field during the previous month.