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Business confidence falls to its lowest level in nearly a decade

Monday 5 November 2018, Despite stable financial data, business confidence has fallen to its lowest level for nearly a decade and is below its post-referendum and post-election lows. The latest ICAEW Business Confidence Monitor™ (BCM) reveals a fall to -12.3 this quarter and saw a sharp fall following the Salzburg meeting and reflecting lack of progress on Brexit negotiations.

Key findings for Q4 2018: 

  • Business confidence fell from -0.2 in Q3 to -12.3 this quarter – a sharp fall in the index
  • Despite low confidence, growth in sales volumes is still around 4% and is expected to remain at this rate over the next 12 months 
  • Across the UK, all regions are in negative territory. FTSE 350 companies are more pessimistic than privately-owned businesses. 
  • Companies continue to find regulations a growing challenge, although the pace at which these concerns are rising has eased slightly 

Sharron Gunn, ICAEW Executive Director, said:  

“Business confidence is at its lowest point since the financial crisis ten years ago. 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. The Budget offered some relief to business but more significant action is needed by Government to provide stability and reassurance.”

Confidence falls sharply
Confidence fell sharply with 42% of businesses less confident in the economic prospects facing their organisation over the next 12 months, compared to the previous months (vs 31% Q3 2018) and only 22% more confident (vs 33% Q3 2018).  As a result the index stands at its lowest level for nearly a decade and is below its post-referendum and post-election lows. 

Sales growth stable and expected to remain so
In contrast to the fall in confidence, sales growth has consistently been at around 4% this year. Companies expect it to also remain at this level in the year ahead. Export growth, which was briefly outpacing domestic sales, has fallen back to just 3.2%  after many quarters of gradual improvement. Input price inflation has eased slightly and profits are broadly tracking sales growth.

Capital investment still weak
Employment continues to grow but at a low rate of just under 2% and is not expected to change. Salaries continue to rise by only 2.2% with no sign of the surge that some analyst have predicted and despite availability of non-management skills and staff turnover becoming greater challenges to businesses. Planned capital investment remains particularly weak along with spending by firms on Research and Development.

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