UK businesses lacking in confidence going in to 2019

The Institute of Chartered Accountants in England and Wales (ICAEW) has released the latest Business Confidence Monitor (BCM). The BCM has revealed that UK business confidence has continued to fall. This is largely due to “a backdrop of global economic worries and weakness in the UK.”

“The overall declining trend, from -12.3 in Q4 2018 to -16.4 this quarter, reflects ever-changing news on Brexit, as well as general economic data,” ICAEW continued in a statement.

The key finds ICAEW has reported for Q1 are as follows:

• Apart from the IT and Communications sector, ICAEW has reported that confidence in other sectors is falling. The least confident of these are the property, construction, retail, and wholesale sectors.
• Every region has “negative confidence”. The West Midlands, East of England, and London are experiencing the lowest confidence of all regions.
• Due to slower sales, ICAEW has reported a decline in profits in the last twelve months.
• Staff turnover, as well as the general availability of non-management and management skills, are starting to increase, causing market challenges.
• There has been a further fall in the index, from -12.3 last quarter, to -16.4 this quarter.

“Companies, at the moment, are unclear about the future,” said ICAEW chief executive, Michael Izza.

He continued: “Directors have the exceptionally difficult task of explaining within their annual reports the impact Brexit might have on their business models and operations.”

ICAEW has further cited that weak GDP growth is expected for Q1, due to slowdowns in the second half of 2018. The estimate is around just 0.1% growth.

However, as “the roulette wheel continues to spin, UK plc is having to place its bets based on best guesswork—and the stakes could not be higher,” said Izza.

With an unstable foundation in government, and thus the current future of the UK economy, Izza has recognised that “[c]ompanies are making decisions now about jobs, supply chains, headquarters, and asset locations—incurring significant, and possibly unnecessary, cost, and upheaval.”

ICAEW’s BCM has revealed that 18% of businesses admitted that the availability of those possessing management skills is a concern for them, as well as 25% revealing worry about availability of non-management skills, and 24% staff turnover.

Of course, this uncertainty revolves largely around Brexit negotiations. Until the UK is certain of their future relationship with the EU, businesses cannot rightly know exactly what path they should take, and accountants will have difficulty advising their business clients.

“We fear the destructive effects of a ‘no deal’ outcome on the economy, so urge our politicians to work together to break the Brexit deadlock and help restore business confidence,” added Izza. “Otherwise, we can expect slow growth in 2019, with businesses unable to rely on consumers or exports to help expansion—hitting jobs and impacting on public services.”

However, ICAEW has revealed that businesses are not the only ones feeling the effects of an uncertain economy.

They stated: “Consumer sentiment is also currently depressed, despite inflation softening to a 23-month low of 2.1%.”

Households are becomingly increasingly cautious, focusing instead on rebuilding their savings rather than relying on unsecured lending. Currently, saving levels are at only half of the normal level.

Four years ago, UK business profits grew at a height of 5.3% four years ago—nowadays, the percentage has settled around the 2.6% margin.

When combined with the “continued tendency for selling prices to lag behind both input prices and salary costs”, it is undeniable that the profits growth in the UK has been squeezed as a result.