Business confidence increases as economic downturn slows

Confidence among business professionals has risen for the first time in two years indicating that the decline in the UK economy has stabilised. 

The latest UK Business Confidence Monitor (BCM) from The Institute of Chartered Accountants in England and Wales (ICAEW) reveals a rise in confidence from -45.3 to -28.2.

The latest findings from the quarterly BCM show that the Index now stands at -28.2, an increase of over 17 points from Q1 2009 but still a long way from +4.8 measured in Q3 2007, the last time the index was positive.

Michael Izza, Chief Executive of the ICAEW, said:

“The rise in confidence is a positive step, indicating a reversal in the trend of falls we’ve seen in confidence over the last six quarters. The underlying data suggests that companies have heeded warnings, taking the right steps to ensure their businesses are positioned to survive the downturn. They are managing the consequences of the global recession remarkably well. While the change in outlook is encouraging, I still believe that difficult times lie ahead. I would urge businesses to not be complacent and be measured in any steps they take in response to an economic recovery.”

Although the BCM reflects a slowdown in the pace of decline across the economy, 1 in 5 (21%) senior business professionals are still much less confident about the next twelve months compared to only 3% who are much more confident.

In terms of financial performance, businesses unsurprisingly report a reduction in profit, turnover and sales over the last year but expect the position to improve in the next twelve months. Of the fourteen financial indicators used in the BCM, five are expected to contract in the next year compared to eight in the last quarter. In response to the economic downturn, companies have focussed hard on managing their costs, running down stock, cutting headcount and implementing low basic salary growth.

Across the sectors, the Banking, Finance & Insurance sector is the most confident at -16.0 compared to -46.0 at the beginning of the year. The Property sector is second most confident (-20.0) and Retail & Wholesale continues to hold up well (-21.8) despite initial fears for their prospects on the High Street. The Hotel & Catering sector remains the most negative sector with the lowest confidence rating of -48.7 as the affect of the cut in consumer spending on luxuries is felt. There are also signs that the decline in the Manufacturing & Engineering sector may be easing with an increase in confidence of 13.5 points.

Confidence improved across all UK regions and countries for the first time in the history of the BCM. The West Midlands saw the largest increase from Q1 2009 from -57.0 to -19.7, contributed to by recent reassurances to the automotive industry. The least confident region is Northern England where the smallest improvement in confidence was see, rising to -38.8 – far below the UK average of -28.2.

Michael Izza concluded: “Although the BCM is in line with other indicators that point towards an upturn, uncertainty and challenges remain ahead. Businesses seem to be taking a more pragmatic approach and lessons have been learnt from past recessions. Rebuilding confidence is an important step in the economic recovery though, for many businesses, there is still little to be positive about.”

For further information please go to www.icaew.com/bcm