Slump in confidence may slow recovery

The economic recovery looks set to slow down during the second half of the year, after a fall in confidence among businesses, research indicated today.

Nearly a fifth of businesses now feel less confident about the coming year than they did during the second quarter, according to accountancy body ICAEW and accountant Grant Thornton.

The groups said the coalition government's emergency Budget, which set out a range of tax rises, and the looming comprehensive spending review had taken their toll on firms' confidence.

The renewed caution among companies caused the groups' business confidence index to drop back four points during the third quarter to 21.5, indicating the recovery could slow down.

Michael Izza, chief executive of ICAEW, said: "UK businesses that came through the recession are now facing the challenge of surviving the recovery.

"They still don't know what the future holds and are uncertain about how the mood of fiscal austerity will impact the economic recovery.

"Government needs to deliver on its commitment to ensure Britain is open for business, while taking the tough decisions required to tackle the deficit."

Despite the fall in confidence, there was a notable improvement in firms' finances, with both turnover and profit growth returning to positive territory for the first time since the beginning of 2009.

Capital investments are expected to increase by 2 per cent during the coming year, with research and development budgets set to rise 1.4 per cent. Firms reported their smallest annual fall in staff numbers since the first quarter of 2009, and they expect numbers to increase by 1.1 per cent during the next year.