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Why has business confidence dropped across the board?

Author: ICAEW Insights

Published: 02 Sep 2022

The property and business services sectors recorded some of the lowest confidence ratings in ICAEW’s latest Business Confidence Monitor. Industry professionals share why.

Despite a weak sales outlook across the property sector, with barely any growth expected due to low capital investment, there is light at the end of the tunnel for those companies that can tap into keen lenders.

According to ICAEW’s UK Business Confidence Monitor (BCM) Q3 2022, the property sector found itself as one of the lowest confident sectors heading into the next 12 months after it recorded -12.2 out of 100 from 1,000 chartered accountants surveyed. To put things in perspective, the most confident sector was transport and storage at 14.7 and the lowest was banking, finance and insurance at -16.7.

Ben Harwood, chartered accountant and Head of Asset Recovery at the national firm of surveyors Naismiths, said: “The mood in the sector is mixed; experienced companies that have the correct advice and support are seeing an increase in future orders, but other companies are delaying decisions and waiting to see how the market changes with the upcoming recession and increases in inflation.”

“Confidence in the property sector remains positive, new instructions continue to be consistent with pre-COVID-19 levels and lenders continue to show appetite in the sector. That said, with construction costs in the property sector increasing, risk for developers has increased, and we have seen an increase in distress in the marketplace.”

Recruitment challenges have made a big impact

Harwood said the recruitment and availability of qualified staff have always been issues in the property sector. “There are not enough experienced individuals in the market, meaning companies are increasingly reliant on working with experienced advisory companies,” he added.

Similarly, recruitment and retention of staff has also long been a significant issue for the business services sector, which also has a low business confidence score of -7.7, according to the latest BCM.

Sonia Dorais, CEO of accounting software company Chaser, said the company had taken a proactive approach to cost-cutting to extend its finances, in anticipation that 2023 would be a difficult year to raise additional funds.

“We expect to see an uplift in the interest to improve receivables processes, as businesses begin to struggle at bringing in income,” Dorais said. “We have experienced challenges in both recruitment and retention. 

“And while finances are top of mind, we have still proceeded with increasing salaries at least at the levels of inflation in order to reward our team for their hard work but also mitigate employee turnover. We are looking at other areas of business to cut costs such as software usage, external services and agencies,” Dorais added.

To mitigate staffing problems, Dorais said the company is focusing on culture and offering non-financial related perks such as flexible hours and the ability to work remotely. The company is also relying on their accounting firm to help them navigate the tax and financial challenges.

Accountancy advice is “critical”

Both Harwood and Dorais are adamant that accounting and financial advice are crucial to any future business decisions and critical to the sector in the current climate. “This is critical, in particular for small businesses like ourselves where we rely fully on their expertise,” said Dorais. “While our expertise internally is on credit management, our accountants are crucial to all our business operations.” 

Harwood added: “Budgeting and cost management are crucial for all businesses. However, this is especially the case during a period of high risk. We are seeing more accountancy professionals supporting the sector to ensure that control and process are at the forefront of developers’ and lenders’ minds.”

Read the full report: ICAEW’s UK Business Confidence Monitor Q3 2022.

Visit ICAEW’s Inflation hub for a closer look at the impact of inflation on people, businesses, accountancy and the wider economy.

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