By Daniel Hunter

As the IMF releases its upgraded UK growth forecasts, a new survey of business leaders shows confidence in the economy growing strongly, with 75% of IoD members saying the outlook is now brighter than at any stage since the financial crisis hit in 2008.

1,309 members of the IoD responded to the survey between 12 and 22 September.

Confidence

- Members are increasingly confident about the outlook for the economy, with nearly half (46%) displaying high confidence for the next 12 months, and only 12% saying they have low confidence. This is a marked improvement on the first quarter of 2013, when 15% had high confidence and 39% low confidence.

- Throughout the year, members have been more confident about their own business’ outlook than they have about the wider economy, but this gap is beginning to narrow. 58% of directors answered that they had high confidence in the outlook for their business, compared to 8% who had low confidence. The fact that individual business confidence and whole economy confidence are coming together is a positive sign that the recovery is taking hold.

Capacity

- Businesses continue to improve their performance with the proportion of members reporting that they are operating below capacity falling from 52% in the first quarter to 47% in the second quarter and 44% in the third. This gradual downward trend is to be welcomed, but still leaves nearly half of the businesses with spare capacity, indicating that whilst the recovery is growing, there remains a way to go.

Forward Guidance

- IoD members have reacted positively to the Bank of England’s new policy of giving forward guidance on interest rates, with two-thirds saying it will have a positive effect on the UK economy over the next year. Strikingly, a third say that they expect their business to increase investment as a result of the policy.

- Only one-fifth of IoD members consider the introduction of forward guidance a risk to the credibility of the Bank of the England.

“Business confidence is clearly on the up and that must be good news for investment and employment," Graeme Leach, Chief Economist at the Institute of Directors, said.

"But before we get too excited, we need to remember there remain two key uncertainties about the recovery; how strong and how long? The recovery still faces significant headwinds both domestically and internationally.

“Domestically consumer spending will be held back by weakness in real income growth and the level of the savings ratio. Globally, economic uncertainty extends across 3 continents, with the US Government shutdown, concerns about a resurrection in the euro crisis and fears about a hard landing in China.

“The normal job of a central bank Governor is to take away the punch bowl before the party gets out of hand. But with the announcement of forward guidance, Mark Carney has decided to extend the happy hour instead.

“Business is in favour of forward guidance, with almost one third of IoD members saying they expect it will help increase investment.”

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