Businesses are growing handily but it might not last as concerns over UK economy grow

Early intervention. That this is the way to go when you spot a problem should not need spelling out. Except in Britain, where the culture is to leave it. And then leave it some more, until the alarm bells ring and there’s a crisis.

This brings us to a couple of surveys from businesses, which have come out over the weekend. They suggest that while things are OK at the moment, a chill may be on the way that could easily turn into something worse.

The first survey comes courtesy of CBI. The business group’s growth indicator is a composite of data on output, sales and business volumes drawn from three other surveys. It shows steady growth, at +19 per cent in the three months to April, against +18 per cent in the three months for March.

The number is a “balance”; the difference in percentage points between the weighted percentage of firms answering that output is “up” and the percentage answering “down”. So, if 30 per cent of firms say that output is up, 60 per cent say that it is unchanged, and 10 per cent say that it is down, the balance statistic is +20 per cent.

The fact that the numbers are positive, and holding steady, would appear to be a reason to feel cheerful. The Institute of Directors’s (IoD) more forward-looking survey of its members’ confidence in their own businesses would appear to reinforce that assessment.

Confidence in members’ own businesses has recovered to + 32 per cent in April against +23 per cent in March. In February, before Russia’s invasion of Ukraine, it stood at +39. Again, the number is a balance, although the survey is obviously somewhat different to the CBI’s.

Where the alarm bells start to jangle is when it comes to firms’ view of the wider economy in the IoD poll. That number was very low at -36 per cent, having collapsed to -34 in March from its previous level of just below zero.

Clearly, government messaging about the roaring success in the UK, and the country’s tip-top prospects under Conservative rule, isn’t getting through to those running businesses on the ground.

But is this just undue pessimism, and perhaps the influence of an extended run of grim media stories concerning the war? If businesses have reasons to feel good about their own prospects, then shouldn’t the economy as a whole do just fine? I suspect there’s more going on than that.

Kitty Ussher, the IoD’s chief economist, pointed out that concern about the UK economy as a whole exceeds even the “other very real pressures of high energy costs, difficulties in the labour market and problems with international supply chains” as an issue.

Those pressures are persistent, nagging difficulties. They are creating headaches for businesses across the country. The fact that a grim view of the UK’s economy trumps the lot of them as a worry for the IoD’s business leaders says something.

Alpesh Paleja, the CBI’s lead economist, concurs. “While private-sector growth seems resilient so far, near-term challenges are growing,” he said. “Strong inflationary pressure is hurting businesses through higher costs, and is leading to an acute cost-of-living crunch for households. This will weigh on the economic outlook for this year.”

Of course, business groups are supposed to ask for things like lower taxes and assistance here, there and everywhere. That is their job. But in this instance, I think they are right to raise the alarm and their calls are well made.

While things look better than you might expect at the moment, given the several challenges the UK economy faces, it probably won’t last and the lack of confidence in the economy plays into that. It will feed into corporate decision-making. Investment will be reduced. New projects will be put on hold.

Early intervention to address this, especially in energy-intensive sectors, would be wise. Unfortunately, Rishi Sunak seems to make all his decisions based not on what’s good for the economy but on what’s good for the Tory party, with an eye on the electoral cycle.

Support for poorer households has been limited at best. For businesses, there’s been even less. That needs to change. If the chancellor sits on his hands for long enough, alarm bells could start ringing and there would be a crisis at the worst possible time for him. And for his party.