UK business confidence fell to 18% in October — its lowest level in at least 13 years, new data has shown.
According to Accenture and S&P Global's latest UK business outlook report, this compared with net balances of confidence of 28% in June and 56% in February.
However, UK optimism was still stronger than other European markets, it said.
The quarterly report of business optimism surveyed 12,000 businesses in total, including 1,400 in Britain.
Despite tough economic conditions, the business outlook for the future remained net positive, with 41% of firms expecting output to rise, compared to just under a quarter (23%) that projected a decline.
As many as 12 of the 14 sectors covered by the survey predicted growth, led by strong expectations among manufacturers of transport and electrical goods.
Hospitality was the only industry to signal a pessimistic outlook, with fears of reduced customer spending and high energy costs.
UK companies were much more confident of a rise in activity than other countries in Europe (+4%), while firms in Germany and Spain gave negative projections for the next 12 months.
The UK firms’ outlook was also one percentage point higher than the global average of 17%.
Inflationary pressures remained elevated over the period, with 80% of firms expecting to raise their salaries over the next 12 months in light of the cost of living crisis and tight labour market conditions.
Selling prices were also likely to rise sharply, the data showed, however, not quickly enough to offset a negative outlook for profits. Likewise, -13% of firms expect lower earnings over the next 12 months.
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Pessimism about profits led firms to plan reductions in both capital expenditure and research and development spending. They were the lowest seen since the drop during COVID-19 in 2020, with net balances of -7% and -8%, respectively.
Employment is still expected to rise, although hiring intentions did fall to a two-year low. Sentiment among businesses on hiring the skills they need over the next 12 months remains broadly unchanged from 2021, although the proportion of firms lacking confidence has fallen marginally from 40% to 35%.
Only half of firms surveyed were confident about recruiting entry-level staff, while only 29% expect to find experienced candidates. Businesses are most likely to prioritise hiring employees with operations (28%), sales and marketing (18%) and digital skills (15%).
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Simon Eaves, market unit lead for Accenture in the UK & Ireland, said: "As we head towards what is likely to be a tough winter for the UK economy, business confidence has understandably been shaken.
“However, many British companies continue to demonstrate resilience in the face of economic difficulties. Hiring plans remain positive and overall optimism, whilst muted, is higher than many of our European counterparts.
“During these challenging times, businesses should stay focused on the long-term and plan for the next growth cycle to remain competitive. They can do this by seeking to reinvent their operations across the whole enterprise, invest in new technologies and skills, and embed sustainability in everything they do."
Profit forecasts were negative in most regions, but with investment planned across the North West and West Midlands.
Only businesses in the North West forecast higher levels of both capital expenditure and R&D spending in 12 months’ time (+7%).
Businesses in the West Midlands also predict a strong balance of business activity against employment, of +17% and +15% respectively.
More widely, businesses across the UK expect activity levels to improve. Only businesses in Northern Ireland expect a fall in activity (net balance -12%), with a negative employment projection.