Business confidence has fallen sharply to its lowest point this year, according to the Institute of Directors

Ministers must focus on delivery rather than “changes in the machinery of government” if business confidence is to be restored, one of Britain’s most influential lobby groups has warned, in a direct message to Andy Burnham as he readies himself to overhaul Whitehall and devolve power to the North of England.

In its monthly business confidence survey, the Institute of Directors revealed that economic sentiment among bosses fell sharply this month. The reading for optimism on the UK economy over the next 12 months dropped to -61 from -53 in May.

Company directors were equally downbeat about their own firms’ prospects and future sales, with revenue expectations sliding to their lowest point this year.

Economists have noted that businesses are still feeling the aftershocks of the collapse in trade across the Strait of Hormuz, the vital Middle Eastern chokepoint that was shut off as a result of the Iran war.

Bank of England analysis has indicated that the impact on consumer demand and the surge in input costs could leave businesses grappling with inflation and sluggish growth for the remainder of the year.

Anna Leach, chief economist at the IoD, said disruption and uncertainty were “becoming normalised” for 80 per cent of companies, and called on ministers to simplify the tax system and reduce regulatory costs in order to ease the pressure on firms.

“As well as easing back on investment and hiring, this is pushing businesses to prioritise resilience over expansion, maintain higher reserves, reduce discretionary spend, diversify their supply chains and enhance their risk management,” Leach said, as reported by City AM.

“While there is a logic to changes in the machinery of government, what matters is delivery on the ground. Businesses need to see meaningful improvements in areas like regulatory cost, tax complexity and swiftness and consistency of government decisions to fundamentally unlock spending and get growth going.”

The IoD’s remarks serve as a cautionary note to Burnham following his announcement of plans to establish a Number 10 in the North and shift power away from London.

According to the survey, cost expectations remained stable despite a sharp drop in oil and gas prices earlier this month, triggered by the announcement of a draft peace deal between the US and Iran. It had been hoped the agreement might ease price pressures and keep inflation in check.

Some 43 per cent of business leaders surveyed said supply shortages could affect their operations, with firms remaining apprehensive about disruptions stemming from the breakdown of trade across the Middle East.

Fuel shortages emerged as the greatest risk facing businesses, with a larger share of directors flagging concerns about the impact compared to April, according to the IoD, which represents thousands of senior executives across Britain.

The IoD’s findings broadly mirrored those of Lloyds Banking’s business barometer, which similarly indicated a drop in confidence levels.

International businesses that participated in Lloyds’ survey were notably more upbeat about growth prospects, according to researchers, as their outlook on the wider economy improved.

Confidence among businesses was strongest in London and the East Midlands, according to the bank, whose survey encompasses companies with an annual turnover exceeding £250,000.