Bosses Predict Year Of Pain

Two-thirds of bosses expect 2006 to be most difficult 12 months since economic downturn in Nineties

BRITAIN'S business leaders are bracing themselves for a tough 2006, with two thirds expecting the economy to deteriorate over the next 12 months, according to a recent MORI survey.

Chancellor Gordon Brown has promised a recovery in Britain's fortunes after the weakest year since the recession of the early Nineties -- but few business leaders have confidence in his optimistic projections.

In the survey of more than 100 FTSE top executives, MORI found that two thirds, 66 per cent, expect the economy to worsen in 2006, while only one in 25, 4 per cent, believe it will improve.

With analysts expecting rampant US growth to stutter in 2006, little sign of a recovery in the eurozone, and consumer spending at home still under pressure from rising taxes, businesses have plenty of reasons to be nervous about the year ahead.

Despite their pessimism about the general outlook, most senior executives expect their own company to be able to ride the storm in 2006. More than half -- 57 per cent -- thought business would improve over the next year, while only 11 per cent expected things to get worse.

Larger firms were particularly negative about the future, as were those based outside the capital. Perhaps surprisingly, bankers and financial services executives were generally as depressed about their fortunes as others, despite a bumper 2005, with a rash of deals that have put City staff in line for the most lavish bonus season since the boom years of the late Nineties.

The poll also suggested few of Britain's corporate giants have much confidence left in the Labour government's recipe for economic success. Two in three respondents rejected the notion that 'in the long term, this government's policies will improve the state of Britain's economy'.

Just two in 10 said they still had faith in the Chancellor's economic policy. Those in the retail sector, hit hard by the slowdown in 2005, were the most divided, with half (47 per cent) saying they still had hope for the government's policies, while the other half (47 per cent) rejected the notion.

After a so-so Christmas, retailers are pinning their hopes on a second quarter-point cut in interest rates in the new year. Bosses from multinational firms, which tend to be more exposed to fast-growing global markets in the US and Far East, are far more upbeat about their prospects than their domestic counterparts. Seven in 10 multinationals expect their company's fortunes to improve over the next 12 months, against fewer than half of domestic companies.

In his pre-Budget statement last month, when he admitted that his forecasts for 2005 were badly awry, the Chancellor blamed record oil prices for the consumer spending squeeze, which dragged growth to its weakest rate since the early Nineties recession.

But when business leaders were asked about the biggest problem for their businesses, it was red tape that came top of most of the lists. Three in 10 executives cited legislation, regulation or bureaucracy as a problem -- almost twice as many as mentioned the next most bothersome issue, the general economic climate.

The Treasury has promised a bonfire of regulation, but business leaders do not seem to be feeling the benefits. The chairman of one major international bank complained of 'regulation, political interference and lack of qualified people'.

The chairman of a major property developer singled out the much-criticised planning regime, saying 'securing planning permissions is becoming more tortuous', and adding 'there is more interference and it is taking longer and even when we are assessing a site it is very difficult to be able to establish what the conditions, and therefore the costs, of the planning would be.' Smaller firms were the most likely to complain about regulation.

The economic climate worried 17 per cent of executives, with the chairman of a leading mining and natural resources company citing 'uncertainty in the pattern of economic development in China', as a concern.

Another troubling issue, reported by 16 per cent, was the skills shortage: 'Lack of workforce, labour costs,' was mentioned by the CEO of one retail property company, while the head of a chemical firm blamed 'energy prices, economics, pensions and the continuing malaise in the manufacturing industry'.

Manufacturing suffered in 2005 as demand from the eurozone economies remained weak, and high-energy prices took their toll. By the end of October, manufacturing output was no higher than it was in 2002.

When asked how they judged the calibre of a major company, business leaders picked out 'financial performance' as most important (58 per cent), but said they would also think about the quality of management (44 per cent), and a company's image (34 per cent).

Of the 132 executives interviewed by MORI, 102 hold the title of chairman, CEO and/or MD, and another 12 are chief financial officers, all of FTSE top 500 industrial firms, top 500 firms by turnover and top 100 financial companies by capital employed. The survey was carried out between 5 September and 28 November 2005.