ICAEW BCM: confidence down, late payments up
18 November 2020: The latest ICAEW Business Confidence Monitor shows confidence is down across the board, particularly in London.
UK business confidence has plummeted from January’s post-election highs as coronavirus and the uncertainty of Brexit continues to impact the economy.
ICAEW’s UK Business Confidence Index – based on 1,000 interviews with Chartered Accountants covering a wide range of sectors and regions – sits at -19.0, marginally better than the last quarter of 2019, where issues like Brexit and the General Election affected business confidence.
UK GDP fell by 22% in the first half of the year, compared to where it was in Q4 2019 – a larger fall than those experienced by other major economies. Total output has been rising since the low point in April, but still below pre-pandemic levels. The second COV wave and subsequent lockdown will likely result in another fall in GDP in Q4.
Exports and domestic sales have significantly fallen for the first time since the financial crisis. As a result, profits are 4% below levels at this point in 2019. Expectations are better for 2021, as companies anticipate modest increases of 2.5% and 2.0% in their domestic and export sales.
“A torrid year is coming to a bleak and worrying end for many households and businesses,” says Iain Wright, ICAEW’s Director for Business and Industrial Strategy. “Households are in the situation of seeing opportunities for spending their money limited, due to new restrictions, as well as preparing for potentially more bad news on the economic and employment front by curtailing spending. The effect is to reduce consumer demand, reducing activity throughout the economy.”
Transport is hit hard – IT faces more competition
The transport and storage sector is one of the worst affected by the pandemic, and unsurprisingly, is the least confident. Airlines have seen their revenue streams evaporate, while other transport businesses have been forced to run reduced services. The sector has experienced both the weakest domestic and export sales – others, such as construction, manufacturing, and retail and wholesale, saw domestic sales fall.
IT and communications is one of two sectors – along with banking, insurance and finance – that experienced modest growth in domestic and export sales. However, the growing demand for services from the sector has led to a decline in confidence. Customer demand is becoming a challenge for 54% of businesses in the sector and market competition is a bigger concern than in other sectors.
London is least confident, East Midlands’ sales fall farthest
London, with its transport system, concentration of IT companies and high-value property market, has the lowest confidence of any region in the UK. The East Midlands, by contrast, was most confident but had experienced the biggest decrease in domestic sales and a fall in exports just behind the West Midlands. It also experienced one of the highest unemployment rates, just behind Wales. Both regions have a significant presence from the aviation manufacturing, maintenance and engineering industries, which have seen dramatic falls in demand this year. Areas reliant on car manufacturers have also taken sizable economic hits.
Late payments and customer demand are growing challenges
Over half of businesses see customer demand as an increasing challenge. Worryingly, 34% of businesses said that late payments were a growing problem; an increase of 18% compared to a year ago.
“The rise in late payments is particularly concerning,” says Wright. “Although a wish to hang onto cash by companies is understandable, a failure to pay bills promptly results in a damaging domino effect throughout the economy, putting at risk many jobs and businesses. We would urge businesses to pay invoices promptly to safeguard their supply chain, as well as maintaining livelihoods.”