Confidence of managers slumps as crisis escalates

Confidence among management at Britain's biggest companies has slumped as the financial crisis threatens the wider economy, putting employment and capital investment at risk.

Optimism about the financial outlook among finance directors fell in the third quarter of this year at the fastest rate since the financial crisis began, a survey by Deloitte, the accountancy firm, found. The survey found that most companies planned to cut employee numbers and to slash investment in their businesses amid a drying up of credit. The proportion of finance directors saying they expected to cut dividends also rose sharply.

Most of the respondents did not see credit conditions improving until the second half of 2009 or later, compared with a belief earlier this year that conditions would ease by the middle of next year.

There was also a big jump in the number of companies considering moving their corporate base outside the UK to cheaper tax regimes to cut costs. The proportion considering following WPP and others making the move jumped from 13 per cent to 29 per cent.

Margaret Ewing, Deloitte partner and vice chairman, said: "Chief financial officers are preparing for a more prolonged period of distress in credit markets than they had earlier expected, with cost-cutting and cash-preservation coming to the fore. There is also a growing readiness to contemplate more radical options such as off-shoring and dividend cuts, a reflection of the growing intensity of the slowdown."

The massive share price falls around the world at the end of last week reflected fears that the financial crisis would wreak havoc on the wider economy and cause a longer, deeper recession than previously expected.

A separate survey showed that the financial crisis was spreading beyond financial services centres to the country's regions. Output continued to contract in September, Royal Bank of Scotland said, with levels slipping to the lowest in 12 years of data availability. Activity fell for the 10th straight month in Northern Ireland. Eastern England, the West Midlands, Wales, the North-east and South-east all had their biggest falls in business activity. London was the only region to record modest growth.

Ernst & Young said profit warnings by UK Plcs jumped in the third quarter with 111 issued, up almost a third from a year earlier. The worst-affected sectors were support services, retail and media. Ernst & Young said the worst was still to come.