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Business confidence at decade low chartered accountants say

4 November 2019. Confidence among business professionals has hit a decade-low as Brexit uncertainty, political instability and slow economic growth take their toll, a study by chartered accountancy body ICAEW has found.

ICAEW Business Confidence Monitor™(BCM), published today, found profits, investment and employment have all been rising slowly as firms exercise widespread caution amid a lack of confidence. Just over a third of companies (39%) said they were seeing productivity rise.

Confidence has been generally in decline since the second quarter of 2014, the quarterly survey of 1,000 chartered accountants showed.

As the UK goes into a General Election, ICAEW is calling for any new government to invest in technology and infrastructure to build a sustainable economy for the future. This includes ensuring digital and transport infrastructure projects are rolled out to new areas, to give businesses outside London greater access to skilled staff and new technology.

Meanwhile, widening the scope of the existing research and development tax credits regime to enable businesses to focus on technology and strategies to boost productivity would also be a help, ICAEW said.

It is likely that the downturn in confidence was largely because of Brexit uncertainty, but political instability had played a part. Global factors – problems in the Eurozone and a trade war between the US and China – may also have contributed.

The downturn in confidence is true of all sectors of the economy and regions of the UK. Confidence is now at its lowest point since the aftermath of the credit crunch in 2008/09.

Michael Izza, ICAEW Chief Executive, said:

“Since 2014 businesses have been telling us their confidence has been in decline. It’s now hit a 10-year low, with slower economic growth a symptom of the malaise that has set in, driven primarily by Brexit uncertainty and political instability.

“This General Election is an opportunity for a government to set out a vision to tackle the challenges faced by businesses and as a society We want to see policies to harness the technological innovation that will drive national productivity, public finances that can deliver the infrastructure needed to support a modern economy, and the UK leading the way towards a zero-carbon future.”

The BCM found that companies’ inventory levels remain high after they stockpiled at the beginning of the year in preparation for a no-deal Brexit. These stocks will help protect companies if Brexit does cause supply-chain problems, but otherwise it is likely businesses will limit production to reduce stocks. Companies expect sales growth to remain moderate next year.

The BCM also shows that employment growth is muted. This may partly reflect a gradual downward trend in the number of companies who say that the availability of skills is a pressing issue.

SMEs and FTSE 350 companies have been performing similarly, the BCM also shows. Profit growth for SMEs was 2.7%, while for FTSE 350 companies it stood at 2%, and both types of firm reported identical export performance. However, at 3.8% SMEs are seeing higher growth in domestic orders than FTSE 350 companies, which saw a 0.8% increase.

Generally, prices are not keeping pace with costs, squeezing businesses. Profits have grown by less than 3%, while both domestic and international sales have been slowing.

Across the economy, the IT and communications sector is performing best, significantly out-performing other sectors on most metrics. Businesses in the manufacturing sector are the most troubled, reporting profits up by only 0.4%, exports by 1.1% and domestic sales by 1.8%. This is closely followed by the transport and storage sector, which was likely to be affected by the collapse of Thomas Cook and strikes at BA.

ICAEW has monitored business confidence since 2003. The survey asks members how confident they are in the economic prospects facing their business over the next 12 months compared to the previous 12 months.