Confidence falls to a 10-year low

FIRMS are growing more uneasy about their prospects as evidence emerges that the UK is in the grip of the longest period of falling profitability since the last recession.

The latest confidence survey by the CBI shows that while 5% of small and medium-sized firms are more hopeful, a staggering 62% are less optimistic.

The wide gap in confidence levels is the worst recorded in more than a decade. The worrying figures are underlined by news that the total of new orders continues to drop and is expected to carry on falling over the next four months.

Output has fallen at the sharpest rate since July 1999 and could bring extra pressure to bear on the Monetary Policy Committee for a further cut in interest rates.

CBI spokesman Simon Bartley said: 'It will be a harsh winter for small and medium manufacturers as confidence slips, orders fall and employment and investment slides.'

The view was echoed by accountants Grant Thornton which reported that the optimism of European companies had shown its sharpest drop for 10 years. Dr Neil Blake, research director, said: 'In previous downturns we have seen a drop of 11-12% in overall confidence on turnover and output. This year shows a fall twice as large.'

According to Experian Corporate Health Check, the return on capital has fallen for eight successive quarters and profitability is now down 14% in 12 months.

The current situation could be worse than indicated because the figures are based on financial results for the first quarter and do not take into account events since 11 September.

Peter Brooker, of Experian, said there was a fear that the UK could be heading for 'a full-blown recession'. He said the Chancellor needed to put the brakes on public spending or raise raises.