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Brexit uncertainty impacts on regions business confidence

Business confidence in the South West stands at -7.0 this quarter, and it is the least negative in the UK, according to the latest ICAEW Business Confidence Monitor™ (BCM). It is however the third successive quarter in negative territory, mainly due to Brexit uncertainty.

Against this background, companies in the region are seeing slower sales and profits growth as well as increasingly challenging market conditions. As a result they expect to reduce investment growth in the next 12 months.

Martin Warren, ICAEW South West Director, said:

“Companies in the region at the moment are unclear about the future. Directors have the exceptionally difficult task of explaining within their annual reports the impact Brexit might have on their business models and operations. As the roulette wheel continues to spin, UK plc is having to place its bets based on best guesswork - and the stakes could not be higher. Companies are making decisions now about jobs, supply chains, headquarters and asset locations- incurring significant, and possibly unnecessary, cost and upheaval.

“We fear the destructive effects of a ‘no deal’ outcome on the economy so urge our politicians to work together to break the Brexit deadlock and help restore business confidence.”

Input prices, wages and profits

Rises in input prices (2.7%) and total wages (2.0%) continue to outpace the increases in selling prices achieved by companies (1.4%). Coupled with slowing sales, these factors explain why profits growth has been slowing over the last four quarters and currently stands at just 2.5% year on year.

Business challenges

In keeping with slowing sales and profit growth, customer demand is rising as a growing challenge (45% of companies are citing this, in comparison with 38% a year earlier). The proportion of businesses reporting the availability of non-management skills as a growing difficulty has risen too, from 26% in Q1 2018 to 34% in the year to Q1 2019, significantly above the historical average for the region. It is also notably higher than nationally, suggesting a tighter labour market.

Prospects for the next 12 months

Projections for the South West are mixed. Although domestic sales growth is expected by companies to remain unchanged, exports are forecast to rise at a faster rate than this year, at 4.0%. Nevertheless, businesses plan to moderate their increases in investment, with growth  predicted to slow in the next year. Research & Development budgets for example, which rose by just 1.4% this year, are to increase by a mere 0.5% in the next 12 months. The subdued level of overall business confidence is an obvious explanation for this.

Media Enquiries:

Caroline Florence, ICAEW press office, on 0207 920 8564 / 07973 400264 or caroline.florence@icaew.com.

Notes to Editors:

  • There are over 1.7m chartered accountants around the world - talented, ethical and committed professionals who use their expertise to ensure we have a successful and sustainable future.
  •  Over 180,000 of these are ICAEW Chartered Accountants and students (152,000 members and 28,000 students). We train, develop and support each one of them so that they have the knowledge and values to help build local and global economies that are sustainable, accountable and fair.   We’ve been at the heart of the accountancy profession since we were founded in 1880 to ensure trust in business. We share our knowledge and insight with governments, regulators and business leaders worldwide as we believe accountancy is a force for positive economic change across the world.
  • ICAEW is a founder member of Chartered Accountants Worldwide and the Global Accounting Alliance.

About ICAEW Business Confidence Monitor ™

  • The Business Confidence Monitor (BCM) survey began 2003.
  • 1,000 Chartered Accountants responded to a telephone survey between 22 October 2018 – 18 January 2019. 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 weremuch less confident about future prospects.

  • Oxford Economics one of the world’s foremost advisory firms, providing analysis on 200 countries, 100 industries and 7,000 cities and local economies. Their analytical tools provide an unparalleled ability to forecast economic trends and their economic, social and business impact. Headquartered in Oxford, England, with regional centres in London, New York, and Singapore and offices around the world, they employ one of the world’s largest teams of macro economists and thought leadership specialists.