British business leaders expect that the UK will slide into a recession and result in a massive cull of top executives who are unprepared to deal with a major economic slowdown.
The gloomy outlook coincides with new figures showing strong inflation, reducing the Bank of England's ability to cut interest rates to stimulate growth.
According to a survey conducted by Pentacle, more than two thirds of the business people asked think the UK economy will be hit by a recession. It is a worrying prospect for today's generation of business leaders, many of whom were not in positions of authority the last time the economy hit the rocks and are instead accustomed to a healthy environment in which the rising economic tide lifted all boats. Nearly two thirds, 62 per cent of the 200 executives contacted for the survey, think that executives lack the experience necessary to handle the more challenging conditions.
"After a long economic cycle with nearly 15 years of growth, most of those at the top of business today are used to vigorous expansion, ambitious projects and taking major risks, all with unwavering confidence," said Professor Eddie Obeng, the director of Pentacle, a business consultancy.
"A strong economy has often protected them from the impact of bad decisions. The question is whether these same bold leaders have the expertise to adapt to much more challenging conditions. A steep learning curve is coming."
The cull has already begun. Adam Applegarth, the former chief executive of the now-nationalised bank Northern Rock, has already resigned. The heads of Citigroup, Merrill Lynch and UBS have all left after bets on the crashing US mortgage market went wrong. Signs are growing now that what has largely been a financial industry problem is spreading to the wider economy. For business leaders unaccustomed to the rough seas of recession, it is a forbidding prospect.
The Bank of England faces the dilemma of slowing economic growth and rising inflation in trying to ward off a recession. There was good news for the economy as 10 of the 12 regions surveyed in the February Purchasing Managers Index registered expanding activity. New business placed with the UK private sector increased at the strongest rate for four months, reflecting stabilising demand.
But further inflationary pressures also emerged in the PMI report as the cost of raw materials and goods sold continued to rise. Input costs in the UK private sector rose at the strongest rate in the 11 years of the survey. Higher prices for chemicals, energy, food, metals, oil and plastics hit manufacturers. Service providers felt the pinch from higher fuel, energy and food costs.
Andrew McLaughlin, the chief economist at Royal Bank of Scotland, said: "It is the inflation indicators that really demand attention. This provides further support to the Bank of England's inflation projections that the [Consumer Price Index] will move well above 2 per cent in the coming months."
Rising prices are hitting cash-strapped households, whose incomes are not rising enough to meet the increased cost of living, a separate survey showed. After this year's pay rises, UK workers will take home an extra £44 a month on average, but with essential living costs going up by £148 a month households will be left a total of £21bn out of pocket, the survey by uSwitch said.
The biggest contributors to the extra £1,783 in annual household costs are petrol, energy bills and mortgages, the survey said.