Confidence hits record low – and 'the worst is yet to come'

CONFIDENCE among British business has plummeted to a record low as new figures show profits warnings have risen sharply.

The findings on the impact of the global economic crisis are included in two surveys published today, which warn of worse to come.

The National Business Confidence report by professional services group KPMG reveals 60% of senior executives described the prospects for UK business as either "bad" or "very bad". Only one third held this view back in May.

Almost half of executives believe the UK economy is in recession; only one in 10 thought a full-blown recession was on the cards five months ago. Some 86% admitted that the credit crunch has had a negative impact on their organisation.

The number of firms considering making job cuts in response to the dire economic climate increased over the summer, leaping from 53% at the end of the second quarter of the year to 62% at the close of quarter three.

Craig Anderson, head of KPMG in Scotland, said: "The results of our latest business barometer are truly the bleakest we've ever seen – and no small wonder. The past month has been one of unprecedented turmoil in the financial markets, with each day bringing yet another extraordinary development that, even in isolation, would have seemed astonishing 12 months ago."

He added that the rapid pace of events had undoubtedly spooked British business, leaving many leaders wondering, what next?

With the vast majority of executives believing the economy will decline further before it gets better, Anderson said it is hard to see anything other than a gloomy winter ahead for the nation's businesses.

With three quarters of businesses now actively trying to cut overheads, KPMG warned that employment costs are coming under increased scrutiny. A total of 62% are considering reducing their head count, up from 53% last quarter.

In a separate survey, Ernst & Young revealed that 111 profit warnings had been issued in the three months to September 30. This is the highest third-quarter figure since 2001 and is up almost a third on the same period in 2007.

Despite just six of the 111 profit warnings coming from Scotland, Colin Dempster, restructuring partner at E&Y, warned the country is by no means sheltered against the current downturn.

He said: "The Scottish figures are not necessarily reflective of what is being witnessed on the ground."

He added companies based in Scotland were feeling the strain as much as those in England.

With the worst almost certainly still to come, according to Dempster, the number of profit warnings is set to rise in the year ahead.

He added: "UK plc is about to enter the perfect storm, arising from the confluence of the financial credit crunch and economic downturn. If we are not already, we are likely to be in recession by Christmas."