Business and consumer confidence dips as economic outlook worsens

Confidence among manufacturers and consumers has fallen, with all of the UK showing a dip in manufacturing morale and individuals increasingly worried about employment prospects and inflation.

With the economy slowing and cost pressures intensifying, business confidence dropped in every region of Britain in the second quarter of the year, according to a Confederation of British Industry/Experian survey. The North-west, the West Midlands and Yorkshire and the Humber had their biggest falls since 2001. Investment intentions for plant and machinery are at their weakest since 2002.

A key cause of the gloomy outlook was rapidly rising unit costs, which showed their biggest increase since the survey started 20 years ago. Suppliers tried to pass on the increased costs by raising prices in every region. Expectations of further price increases were widespread.

Expectations for total orders are down across every region in the second quarter. The worst forecasts were in the West Midlands and Scotland, where expectations were at their lowest since 1998 and 2001. The East Midlands, the North-east and Yorkshire & the Humber turned solidly negative after remaining positive for most of the past two years.

The outlook for jobs has worsened as prospects for the economy have dimmed. Regions such as the West Midlands, Northern Ireland and the South-east & London expect big job losses in the coming months.

Consumers are also increasingly pessimistic about the prospects for the jobs market. Expectations for employment and job security dropped sharply in July, according to the Lloyds TSB Corporate Markets consumer survey.

Inflation is taking hold in people's expectations for the economy, with an increase in the number of consumers expecting higher prices in the next 12 months. The average expectation for the official inflation rate hit a survey record of 4.8 per cent.

The Bank of England is grappling with the twin threats of inflation and a slowing economy. Policymakers have said repeatedly that their main aim is to stop inflation becoming embedded in expectations.