Business confidence lowest in 10 years

The Institute of Chartered Accountants in England and Wales (ICAEW) recently released a report that has revealed that business confidence has been shown to be lower now than it was both post-referendum and post-election. This means it has fallen to its lowest level in nearly a decade; the financial crisis of 2008 being the last time in which business confidence was severely impacted, and for good reason.

The fall to -12.3 this quarter – as reported in the ICAEW Business and Confidence Monitor (BCM) – is a sharp fall that occurred following on from the likes of the Salzburg meeting in September, when the lack of progress in Brexit negotiations became painfully obvious. When compared to the -0.2 that was recorded in Q3 2018, this is particularly alarming.

However, rather more surprisingly, this recording of business confidence has been collated despite the fact that there has been relatively stable financial data. For example, the growth in sales volumes has stabilised at roughly 4%, and this is expected to remain the case over the next 12 months.

When considering this discrepancy between business confidence and solid financial data, Sharron Gunn, ICAEW executive director, explained: “Leaving the EU and its potential impact is at the front of everyone’s minds. This is a difficult time to run a business, let alone finance the major investments the UK economy will desperately need post-Brexit to drive growth.”

Once again, the uncertainty of the UK’s economic future beyond Brexit is having a damaging knock-on effect throughout the country, but with an emphasis on businesses.

When considering the statistics more closely, ICAEW has stated that, although a lack of business confidence has spiked all around the UK, FTSE 350 companies are, on average, more pessimistic than privately-owned businesses.

Nonetheless, it is important to note that the lack of confidence UK businesses have has not only been caused by Brexit. The world of regulations, and regulation changes, has been a source of constant challenge, as businesses attempt to remain in line with ever-changing rules.

ICAEW’s report highlighted that 42% of UK businesses are less confident in their economic prospects over the next year, “compared to the previous months (vs 31% Q3 2018) and only 22% more confident (vs 33% Q3 2018).”

There are positives for businesses to focus on, however; export growth continues to increase. Although, it is important to note that this has fallen back to just 3.2% after “many quarters of gradual improvement.” Furthermore, input price inflation has eased slightly, and profits are broadly tracking the sales growth.

“Employment continues to grow,” ICAEW has claimed. “But at a low rate of just under 2%, and [it] is not expected to change [anytime soon].”

This has been matched by a 2.2% growth in salaries; yet there is no sign of the surge some analysts predicted, despite the availability of non-management skills and staff turnover becoming two of the great challenges that businesses face. Furthermore, planned capital investment has remained a weak area, as well as spending by firms on Research and Development.

The government, according to Sharron Gunn, used “the Budget [to offer] some relief to business, but more significant action is needed to provide stability and reassurance.”