IoD survey reflects gloom on economy

DIANE COYLE

Economics Correspondent

The Institute of Directors yesterday became the second business organisation to warn that confidence has dropped to its lowest level since Britain was ejected from the European exchange rate mechanism.

The IoD's latest survey of members found that for the first time since October 1992, the number who were less optimistic outweighed those who were more optimistic about prospects for the economy. It follows a similar finding in the Confederation of British Industry's latest survey, which reported a fall in optimism for the second month in a row, also to the lowest level for three years.

Both surveys were carried out before the shock fall in manufacturing output in September. Ruth Lea, head of the IoD policy unit, said these figures and the survey result would make uneasy reading for the Chancellor. ''The Chancellor should make bold spending cuts to finance the tax cuts business needs, and if there are further signs of weakening in the economy he should not hesitate to cut interest rates.''

Today's Bank of England Inflation Report will reveal whether the Bank has changed its view that there is no scope for a reduction in interest rates yet. Analysts expect the report to be especially cautious as the Bank's view will depend on the Budget contents. Since a speech by Eddie George, the governor, in late September - when he said the chances were still that base rates would need to rise - the evidence has pointed to weaker activity but worse inflation than earlier in the year.

The IoD survey revealed that 30 per cent of directors have become less optimistic about the economy, compared with 28 per cent who were more optimistic. The main worry cited by the pessimists was political uncertainty, followed by the economy's slower rate of growth.