1. Economic Outlook
Issue 7 – October 2012
Patrick Woodman

2. Introduction
The Economic Outlook research series provides a six-monthly snapshot of managers’ views
on the economy and the prospects facing their organisations. Making use of tracking data
collected over the last four years, the research series provides regular insights on the
state of the economy and the impact it is having on UK organisations. It reviews managers’
expectations of future economic performance and the actions they are taking to steer
their organisations through the challenges they face. It also assesses support for a range
of public policy measures in order to gauge what policies professional managers would
like to see implemented to help their organisations succeed.
Methodology The latest Economic Outlook survey was conducted between 31 August and 13 September
2012. A sample of 15,000 members was invited to complete the survey online with a total
of 510 responses received from across the UK economy, including a range of industry
sectors and managers at different seniority levels up to directors and chief executives.
The response rate was lower than previous editions of the survey, but it is not clear why
this may have been the case.
Where reference is made to net percentage points, such as the net level of employer
optimism, this figure is calculated by subtracting the percentage of those who are not
optimistic from the percentage of those who are optimistic.
Due to rounding charts and tables displaying percentage figures may not add up to 100.
This report has been prepared by Patrick Woodman at CMI. The work of Paul Hutchings in
particular is gratefully acknowledged. CMI is also grateful to all members who completed
the survey and continue to support CMI’s research programme.
Copyright Chartered Management Institute ©
First published 2012
Chartered Management Institute
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London WC2R 0EZ
All rights reserved. Except for the quotation of short passages for the purposes of criticism and
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without prior permission of the publisher.
British Library Cataloguing in Publication Data
A CIP catalogue record for this report is available from the British Library
ISBN 0-85946-448-2
2

3. Foreword
We have enjoyed a unique summer in the UK this year. Sporting excellence took centre
stage, underpinned by organisational and managerial brilliance in the preparation and
delivery of the London 2012 Games. Who could disagree that they were the best Olympic
and Paralympic Games ever?
But now, it’s back down to earth with a bump. The findings of our latest Economic Outlook,
presented here, paint a picture of difficult economic circumstances for many businesses.
On the whole, managers are less optimistic about their companies’ prospects now than
they were six months ago. Big majorities, across all sectors, report that the state of the
economy is damaging their organisation.
The effects of this on our companies and our people are visible in these results. Most
managers report that employer spending is still being reined in. They are tasked with
controlling costs and leading their teams through change, in the middle of what amounts
to a prolonged crisis in employee engagement and morale.
Meeting these challenges is no mean feat. Only the best managers will be able to do so.
That’s why I believe professional qualifications and standards, including Chartered Manager,
have such an important role to play in our recovery, even when many employers have cut
budgets for staff development.
The direction of the economy is, of course, an area of intense political debate. It’s now
over two years since the Coalition Government was formed with an explicit commitment
to stabilising the economy and securing growth. This survey shows that many managers
have doubts about the Government’s present economic strategy and large numbers do
not expect economic recovery until next year, if not later. We have a serious deficit of
management confidence.
Of course, the difficult question is how to rebuild confidence. In the absence of ‘game
changing’ policy, businesses face a long, slow road back to economic health. Professional
managers will have to capture a little of the magic we shared this summer to keep us on track.
Ann Francke
Chief Executive, Chartered Management Institute
3

4. Summary of findings
The UK economy •• Impact of the current state of the economy – 77 per cent of private sector
managers report that the current state of the economy is having a negative impact on
their organisation. So too do 95 per cent of public sector managers and 90 per cent
of those in the not-for-profit sector. The overall number, 84 per cent, has held steadily
above 80 per cent since March 2009.
•• Economic growth over the next 12 months – managers are pessimistic about the
direction of a number of key macro-economic indicators. Only nine per cent expect
GDP growth over the next 12 months while 52 per cent expect consumer spending
to fall. Seventy-two per cent expect business insolvency to rise.
UK organisations •• Falling employer optimism about the next six months – the net optimism score
among private sector managers has dropped by 13 points over the last six months,
from +11 to -2. The public sector outlook remains deeply pessimistic at -40.
•• Employer investment – marketing, business development/sales and IT are the only
categories where spending is more commonly expected to rise than fall over the next
six months. Overall, 33 per cent expect cuts in spending on training and development
and the same number expect cuts in management and leadership development
specifically, despite skills shortages being ranked as the third most common concern
for the next six months.
•• Focusing on costs – it remains the case that managers have had a strong focus on
controlling costs over the last six months. However, 35 per cent of private sector managers
report that they have introduced new products or services in reaction to the continued
tough climate.
•• Availability of finance – just 7 per cent report that the availability of finance has
improved over the last six months.
•• Damaging economic factors – the cost of energy remains the most common concern
for the next six months, with 65 per cent anticipating that it will have a detrimental impact
on their organisation over the next six months. The level of government debt remains
the second most common barrier to growth, followed by management skills shortages.
UK managers •• Job security – 44 per cent of managers report that they feel insecure in their current job.
It is markedly higher among women (61 per cent insecure, compared to 40 per cent of
men). It is highest in the public sector at 56 per cent (four points lower than six months
ago), compared to 35 per cent in the private sector.
•• Morale – employee morale continues to suffer: 86 per cent of public sector managers
report that it has fallen over the last six months, compared to 47 per cent in the private
sector.
Policy measures •• Pace of deficit reduction – unsurprisingly, opinion is deeply divided over the
controversial question of how quickly the deficit should be reduced. Forty-one per cent
of managers in the private sector feel current measures are not going fast enough,
while in contrast, 49 per cent of those in the public sector managers feel it is moving
too quickly.
•• Low confidence in economic strategy – overall, 63 per cent of respondents say
they have little or no confidence in the present economic strategy. There are not such
clear sector differences as might be assumed: this position is held by 59 per cent in
the private sector.
4

5. •• Role of government – 69 per cent reject the suggestion that government can do little
to affect their organisation’s circumstances. Top of the list is simplification of the tax system,
backed by 89 per cent, followed by tax breaks for investment in skills (85 per cent) –
the two options which have consistently topped our questions on this subject. On the
subject of skills, 70 per cent back moves to give employers more influence over public
investment in skills.
Commentary on findings
The UK economy Five years after the sub-prime mortgage crisis hit the UK with the failure of Northern Rock
– and four years after Lehman Brother’s dramatic collapse – the UK economy remains in
recession. Eighty-four per cent of the managers surveyed report that the economy is
having a negative impact on their organisation, a number that has barely changed since
six months ago (83 per cent) and has not dipped below 80 per cent since March 2009.
Only five per cent report a positive impact.
Significantly negative impact
Slightly negative impact
-44 -40 12 41 No impact
Slightly positive impact
Negative % Positive %
Significantly positive impact
Figure 1 Impact of economy on organisation
Ninety-five per cent of managers in the public sector report a negative or significantly
negative impact, along with 90 per cent in the not-for-profit sector. Managers from the
private sector fare only slightly better, with 77 per cent reporting a negative impact: just
7 per cent in this sector report that the economy is having a positive impact.
Economic The economic contraction of 0.4 per cent in the second quarter of 20121 left the UK as
indicators one of only two G20 nations in recession.2 A new question in this survey asked managers
when they think the economy will return to growth. Respondents were overwhelmingly
downbeat, with 46 per cent suggesting it will not be until after June 2013 and only 7 per
cent suggesting growth will return this or the next quarter. Whatever transpires when the
latest official figures are published – and some have suggested that growth has returned
this quarter – these figures strongly suggest that managers lack confidence in the
prospects for significant and sustainable recovery.
Three-quarters of manager expect employment levels to stagnate or decrease over
the next twelve months whilst 72 per cent expect an increase in business insolvencies.
Sixty-three per cent expect household debt to grow whilst 65 per cent expect Government
debt to also increase.
1 Office for National Statistics. Statistical Bulletin: Quarterly National Accounts, Q2 2012.
http://www.ons.gov.uk/ons/dcp171778_278747.pdf 5
2 http://stats.oecd.org/index.aspx?queryid=33940 The other country is Italy.

6. 60%
50% 46
40%
30%
20% 18
14 15
10% 6
1
0%
This quarter Next quarter 4th quarter 1st quarter After June Don’t know
(June to (October to 2012/13 2013/14 2013
September December (January to (April to
2012) 2012) March 2013) June 2013)
Figure 2 When will the UK economy come out of its current recession?
Management Reversing the trend of modest improvements seen in the last four CMI Economic Outlook
optimism reports, the findings across all respondents show a decline in the net level of optimism over
the next six months, from -4 to -14.
Managers in the public sector continue to record very low scores (-40 net). Perhaps more
strikingly, private sector optimism has dropped into negative territory, down 13 points from
+11 six months ago to -2. The not-for-profit sector is the only sector recording a positive net
optimism score but this remains low at +3.
% net optimism
30%
20%
10%
0%
Private sector
-10%
Public sector
-20% Not for profit sector
-30%
-40%
-50%
Sept ’08 March ’09 Sept ’09 March ’10 Sept ’10 March ’11 Sept ’11 March ’12 Sept ’12
Figure 3 Net management optimism about prospects for the next six months, by sector
Managers remain more optimistic when asked about their long term prospects, a trend
that has been consistent since our first survey. For example, the net optimism level of -2 for
the next six months among private sector managers is transformed to +48 when thinking
about prospects over the next three years. Unfortunately, looking back over the results
since 2009, such optimism about the long term has not been realised in the form of
improvements in economic performance as time has passed.
It is also striking that public sector “optimism” remains barely improved over the same time
frame, only rising from -40 to -23. The long-term implications of austerity are evidently
well-understood.
6

7. Factors affecting Among a range of factors which may damage or assist organisations, the cost of energy
growth remains the most widely feared barrier to growth, with 65 per cent expecting it to have a
negative impact on their organisation over the next six months. The level of Government debt
remains the second most significant barrier (53 per cent), a large proportion of which is from
those in the public sector. Shortages of management skills remain the third most common
concern, a factor that is particularly concerning given the current state of the job market.
Interestingly, access to finance is rated relatively lowly; even among SMEs, only 30 per cent
of managers anticipate that it will be a problem, although evidently it can be a ‘make or break’
issue for companies which find themselves struggling with cash flow or hampered in their
efforts to grow.
80%
70%
60%
Cost of energy
Levels of
50%
Government debt
Management skills
shortages
Pension liabilities
40%
Employment disputes
Levels of
30% personal debt
Labour shortages
Changes in value
20% of the pound
Availability of credit
Reducing carbon
10% emissions
0%
March ’09 Sept ’09 March ’10 Sept ’10 March ’11 Sept ’11 March ’12 Sept ’12
Figure 4 Factors impacting on business over the next six months: per cent damaging impact
On the subject of access to finance, the survey again asked about the availability of finance,
both for short term needs and long term investments. The findings remain a cause for
concern, with substantial numbers reporting that it has worsened both for short and long
term needs (38 and 42 per cent respectively). Only 7 per cent of managers report better
access to credit for either long term or short term needs. There has been no dramatic
change in these numbers over the last three years.
7

8. Impact of summer A new, one-off question was added to the survey to provide some insight into the specific
2012 events events enjoyed by the UK over recent months, specifically the Jubilee and the London
2012 Games. After a particularly wet summer across the UK, we also asked about the
impact of the weather, and, for comparison, the effects of the Eurozone crisis, which has
continued to develop over the same period.
In all four cases, the majority replied that there had been no impact on their organisation.
The Eurozone crisis was by far the most damaging (followed by the weather), while the
London 2012 Games were seen as most beneficial. It is perhaps cheering that 3 per cent
could report benefit from the summer weather (interestingly, this small band included a
number from the police). In London, 29 per cent reported benefits from the Games –
although even here, 53 per cent reported that it had no impact.
Damaging No Impact Beneficial Beneficial
Impact Impact Impact – London
% % % %
London 2012 Games 11 73 16 29
Jubilee celebrations 8 82 9 14
The weather 22 75 3 0
Eurozone Crisis 41 59 1 3
Table 1 Impact of specific events on organisational performance
Employer The Economic Outlook report of a year ago noted that expectations of employer
investment and investment decisions had, in general, fallen since the beginning of the series in 2008.
cost cutting The latest data shows that expectations remain low. In eight of 11 categories, as shown
in Table 2, managers believe that budgets will decrease over the next six months. Only
budgets for marketing, business development and IT spending are expected to see
increases in investment. Spending on management consultancy, recruitment and training
and development look most at threat.
Sept ’08 Mar ’09 Sept ’09 Mar ’10 Sept ’10 Mar ’11 Sept ’11 Mar ’12 Sept ’12
Business development/sales 38 12 14 21 14 7 7 16 20
Marketing 31 7 8 16 1 1 6 8 13
IT 16 -17 -10 -4 -16 -14 -9 -1 3
Corporate social responsibility 6 -9 -11 -6 -16 -14 -13 -9 -6
Employee pay n/a -12 -10 -1 -18 -24 -18 -13 -7
Product research and development 11 -14 -14 -8 -17 -14 -12 -9 -11
Management and leadership
development n/a -22 -14 -10 -19 -22 -19 -13 -14
Training and development 13 -21 -16 -13 -23 -24 -23 -14 -14
Plant and machinery -11 -26 -28 -21 -24 -26 -25 -17 -21
Recruitment -19 -38 -30 -22 -37 -37 -33 -23 -23
Management consultancy -20 -30 -29 -23 -34 -33 -29 -26 -25
Table 2 Net investment expectations over the next six months
8

9. The latest survey asked a new question to assess the business plans of those being
surveyed, as an indicator of management’s ambition and thus the relative health of the
sector. The results, indicating whether organisations are planning for growth, for stability,
or for decline, show that only 45 per cent of the private sector feel able to plan for growth.
In the public sector, 53 per cent are planning for decline, reflecting the effects of austerity.
The survey data also shows that cutting and controlling costs continues to be a major priority
for many managers: 43 per cent in the private sector report having reduced overheads in
the last six months (albeit a little down from 56 per cent six months ago), as do 36 per cent
in the public sector. The evidence of change in the public sector as it adapts to spending
cuts continues to be prominent. Staff costs again appear to have been a significant area
for reductions in the last six months, with high rates of redundancies (both voluntary and
compulsory).
Overall 25 41 34
Growth
Private sector 15 40 45
Stability
Decline
Not for profit sector 13 58 29
Public sector 53 38 10
Negative % Positive %
Figure 5 Expectations of current business plan for next 12 months
90%
82
80% 77
70% 68
60%
50% 48
Private sector
41
40% Not for profit sector
35 35
29 30 Public sector
30%
25
18 21 20 20
20% 17
10%
0%
Introduced new Frozen Compulsory Voluntary Recruitment
products/services pay levels redundancies redundancies freeze
Figure 6 Organisational responses to the current economic conditions in the last six months by sector (selected
measures)
9

10. Policy debates The survey has long examined managers’ attitudes to the pace of the government’s measures
and measures to cut the public deficit. The latest survey finds the highest numbers yet concluding that
the pace is not quick enough – a notable change in perceptions since 18 months ago.
Spring 2011 Autumn 2011 Spring 2012 Autumn 2012
% % % %
Not quickly enough 11 25 24 34
At about the right pace 40 39 43 34
Too quickly 48 36 32 33
Table 3 Attitudes to the pace of measures to cut the public spending deficit, over time
Perhaps unsurprisingly, given that public sector managers will be experiencing the effects
of political decisions on spending, there are big differences in the responses from different
sectors to this question.
Not quickly About the Too
enough right pace quickly
% % %
Private 41 35 24
Public 21 30 49
Voluntary 24 36 40
Table 4 Attitudes to the pace of measures to cut the public spending deficit, by sector
Eighty nine per cent of public sector managers report that the austerity programme is
having a damaging impact on their employer – but so too do 47 per cent of those in the
private sector and 61 per cent in the voluntary sector.
89
90%
80%
70%
61
60%
52
50% 47 Private
40% 37 Public
Voluntary
30%
20%
11
10%
2 1 2
0%
Damaging No effect Beneficial
Figure 7 What impact is the Government’s austerity programme having on your employer
10

11. Confidence in Important though the drive to reduce the deficit has been to the Coalition, economic policy
economic strategy is far from exclusively about public spending. Over two years into the Coalition Government,
this survey asked a new, related, question to judge managers’ confidence in the current
economic strategy. Only 2 per cent express a high level of confidence; 36 per cent
express a moderate level of confidence. However, 44 per cent overall hold little confidence,
while 19 per cent say they have no confidence at all. Although there are some differences
between respondents working in different sectors, the differences are not as pronounced
as might be expected: worryingly, 59 per cent of private sector managers have little or no
confidence in the current strategy.
60%
51
50%
43
40
40% 35
31 Private
30% 27
23 Public
20
20%
16 Voluntary
10%
1 2 4
0%
No confidence Little confidence Moderate confidence High confidence
Figure 8 Confidence in Government’s current economic policy
Government As in previous editions, simplification of the tax system is the most popular of a range of
policy potential policies consulted on through the survey, backed by 89 per cent. Tax breaks for
employer investment in skills development also remains a real priority, backed in this latest
survey by 85 per cent, while 70 per cent back increasing employer control over skills
investment, a key plank of the Government’s skills policy.
Amid widespread debate over how youth unemployment can be cut, it is interesting to
note the strong support for increased funding for Apprenticeships (81 per cent support) –
and the strong opposition to any move to cut the National Minimum Wage for young
people (70 per cent).
11

12. Disagree Agree Net level of support
% % September 2012 %
The tax system should be simplified 2 89 87
Government should provide tax breaks for employer
investment in skills development 3 85 82
Government should strengthen measures to improve bank
lending to businesses as a matter of urgency 4 86 82
Government funding for apprenticeships should be increased 6 81 75
Regulation of the financial sector should be tightened 7 77 70
Government should direct investment towards transport
infrastructure 7 73 66
Employers and learners should be given greater control over
funding for skills development 7 70 63
Measures to reduce business regulation should be accelerated 12 66 54
Government should take a more active role in providing
finance to business 17 68 51
Interest rates should be held at current levels 16 66 50
Introduce a moratorium on new regulations affecting
small businesses 10 57 47
Business taxes should be cut 15 55 40
Government should reform planning laws 18 46 28
Government should direct investment towards green
infrastructure 22 45 23
Offering unpaid work placement schemes to unemployed
young people 32 46 14
Replacing the current fair dismissal rules to make it easier
to dismiss staff 37 40 3
Visa laws should be relaxed to support businesses in the
recruitment of international talent 47 22 -25
Public spending should be cut further 56 29 -27
Interest rates should be raised 62 16 -46
Government can do little to affect the circumstances
of my organisation 69 15 -54
Reducing the minimum wage for young people 70 11 -59
Table 5 Net level of support for possible economic policy measures
Morale and job The survey continues to suggest that employee morale is suffering in the midst of the
security continued economic pressure, cost-cutting measures and organisational change. By a long
way, the worst-affected sector is the public sector, where 86 per cent report that morale
has fallen: however, 47 per cent in the private sector also report a worsening position in
the last six months.
Overall 23 35 32 10 1
Much worse
Private sector 14 33 40 11 1 Slightly worse
Neither worse
nor better
Not for profit sector 10 31 45 14 Slightly better
Much better
Public sector 46 40 10 4
Negative % Positive %
Figure 9 Change in employee morale over the past six months
12

13. Given the overall picture, it is no surprise that many managers perceive their jobs as
insecure – overall, 44 per cent describe themselves as insecure or very insecure in their
current roles – or that sector differences persist (see page 4). However there are also
sizeable differences between men and women’s perceptions, as Figure 10 below shows.
60%
50
50% 47
44
40%
33 Male
30
30% 27 Female
20% 17 Overall
13 14
10%
10 9
6
0%
Very insecure Insecure Secure Very secure
Figure 10 Job security by gender
13

14. Recommendations – the management challenge
One of the clearest themes to emerge from this edition of the Economic Outlook is the
question of managers’ confidence. At a macro-economic level, many managers lack
confidence about the overall direction of the government’s economic strategy. It is also in
short supply when it comes to managers’ views on their prospects for the months ahead,
where overall optimism levels are lower than they were this Spring. With UK companies
known to be sitting on unprecedented cash reserves, holding back from investment
because of concern about the economy, it is clear that confidence is something with real
implications for future performance.
Rebuilding such confidence is far from straightforward. Much will rely, clearly, on macro-
economic factors such as consumer spending or on government policy. One area that is
less often discussed is the question of professional development: as it happens, confidence
also emerged as a strong theme in two of CMI’s previous reports this year, Professionalising
Management: the impact of Chartered Manager, and The Value of Management and
Leadership Qualifications.3 They found that increased confidence and self-awareness
were two of the most important effects of taking management qualifications or achieving
Chartership. Separate research also found that organisations which invest effectively in
management and leadership development were performing 23 per cent higher across a
range of measures,4 a finding which really should help to inspire confidence. Management
development clearly needs to be part of the answer to the crisis of confidence affecting
UK organisations.
CMI also recommends that policy makers take account of the wider concerns and policy
preferences raised in the Economic Outlook. The priority areas include the following:
•• Employers are continuing to seek greater control over the funding of skills development
and strongly support tax breaks to support their existing investment in skills. Measures
such as the Employer Ownership Fund and Growth and Innovation Fund, which give
employers control of skills funding, should be welcome, and there is also a desire for
further funding for Apprenticeships.
•• Simplification of the tax system: a clearer and effective tax regime which supports
investment is rated as a more of a priority than reductions in tax.
•• It still appears that measures to improve access to finance are urgently needed.
As we have previously argued, restoring Britain’s economic health will be achieved
by persistent commitment to a wide range of complementary measures: in fiscal and
monetary policy, in legal structures that define corporate governance and the scope
and structure of markets, in education and training, and in trade and social policies.
These actions to create a more business-friendly environment will help to rebuild
confidence – but highly skilled and professional managers will need to play a critical role.
3 Both available via www.managers.org.uk/researchreports
14 4 McBain et al (2012), The Business Benefits of Management and Leadership Development,
www.managers.org.uk/MLDbenefits

16. Chartered Management Institute
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and services support the development of
management and leadership excellence across
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Through in-depth research and policy surveys
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Members, CMI maintains its position as the
premier authority on key management and
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For more information please contact
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