Fall in Business Confidence Indicates Slow-Down in Economic
Recovery
Confidence among businesses has fallen according to the latest
ICAEW/Grant Thornton UK Business Confidence Monitor (BCM),
indicating that the economic recovery will slow in the second half
of 2010. Despite uncertainty as to the impact on the recovery of
the Coalition Government’s plans to reduce public spending, the
BCM’s financial performance indicators suggest that the financial
health of UK businesses continues to improve.
Key findings for Q3 2010 include:-
• The Business Confidence Index (BCM) has declined since Q2
2010. It fell from +25.5 to +21.5, a fall of four points
• Nearly a fifth (19%) are now less confident about the coming
year – up from 14% in Q1 2010 • Despite this, turnover and profit
growth returned to positive territory for the first time since the
start of 2009. Growth of 1.6% and 1.7% respectively are reported
for the year to date
• Businesses expect to increase prices by only 0.9% in the next
twelve months which points to limited inflationary pressures and no
need for interest rate rises for some time
Michael Izza, CEO of ICAEW, said: “UK businesses that came
through the recession are now facing the challenge of surviving the
recovery. They still don’t know what the future holds and are
uncertain about how the mood of fiscal austerity will impact the
economic recovery. Government needs to deliver on its commitment to
ensure Britain is open for business while taking the tough
decisions required to tackle the deficit.”
Scott Barnes, CEO of Grant Thornton, said: "There is a mixed
picture for business across the UK's regions and some sectors
continue to struggle more than others. Clearly economic conditions
remain tough but there are signs that some companies are looking to
switch from short-term survival measures to opportunities for
growth. The recession has changed the business landscape and the
measures businesses have taken to survive may make them stronger as
the recovery begins to take hold."
Fall back of confidence
Since the last BCM, the coalition government formed and
undertook an Emergency Budget which outlined a combination of
public sector spending cuts and tax rises. A Comprehensive Spending
Review (CSR) and Pre-Budget Report (PBR) are also expected later in
the year. Economic growth was unexpectedly high in Q2 2010 (1.1%)
and is anticipated to slow down as the effects of the inventory
cycle wear off. Further down the line, cuts and tax rises will
start to take effect on overall economic activity. All these
factors have lead to a degree of uncertainty among businesses.
Improvement in financial performance
There has been a noticeable improvement in the financial health
of businesses. Turnover and gross profits have increased and the
yearly growth rate in exports has risen to 2.2% from 1.3% in Q2
2010. Looking ahead, capital investments are expected to grow by 2%
over the next 12 months, from static growth, and R&D budgets
are set to increase by 1.4% - positive signs, but still well below
pre-recession growth rates.
Small increase in recruitment expected
Businesses have reported the smallest annual fall in staff
numbers since Q1 2009, expecting the number of employees to
increase by 1.1% in the next year. With more vacancies becoming
available, employee movement becomes more frequent. 13% of
businesses feel that staff retention is a greater challenge
compared to a year ago though only modest salary growth is expected
– 1.5% in the next twelve months.
Inflationary pressures ease
Businesses expect to increase selling prices by on average 0.9%
over the next year, while they expect input prices to rise by 1.4%.
The number of firms with below normal stock levels continues to
fall in this quarter, with the share of businesses with below
normal stock levels down to 14% from 26% a year earlier. These
findings suggest that businesses’ price expectations remain
relatively anchored.
ENDS
For further information please go to icaew.com/bcm or
contact Jason Gowar, Grant Thornton press office, on 0207 728 2915
or 07827 820526, email jason.gowar@gtuk.com
Notes to editors:
1000 Chartered Accountants responded to a telephone survey
during the period 29 April – 22 July 2010. Businesses were
categorised in terms of size (no. of employees), region and
industry sector. Regional classification used was ONS Government
Office Regions.
The BCM survey covers over 1% of economic activity both for the
UK as a whole and for different UK regions. This assures our data
captures accurately the mood of UK senior business
professionals
Business Confidence Index methodology – The Business Confidence
Index is calculated from the responses to the following: “Overall,
how would you describe your confidence in the economic prospects
facing your business over the next 12 months, compared to the
previous 12 months?” A score was applied to each response as shown
below, and an average score calculated: Variable Score Much more
confident +100 Slightly more confident +50 As confident 0 Slightly
less confident -50 Much less confident -100 Using this method, a
Confidence Index of +100 would indicate that all survey respondents
were much more confident about future prospects, while -100 would
indicate that all survey respondents were much less confident about
future prospects.