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ICAEW Business Confidence Monitor (BCM): South East

Q1 2020: Companies report weaker sales growth and growing concerns over demand

Despite showing considerable improvement in Q1 2020, business confidence in the South East remains negative. Sales and profits growth are slowing year on year, and weakness in demand is a widespread concern for businesses. Companies are planning to moderate their investment spending growth over the next 12 months.

Business Confidence in South East

In common with the rest of the UK, the Business Confidence Index among companies in the South East has improved. This may partly reflect a somewhat clearer picture for businesses over the UK’s departure from the EU. However, at -2.7, confidence still remains below zero. 

Domestic sales and exports growth

Muted sales growth is likely to be weighing down overall sentiment. Domestic sales growth stands at 2.5% in Q1 2020 year on year, a slower pace than the 3.9% rise in the 12 months to Q1 2019. Weaker still is export growth of 2.2%, which is down on Q1 2019 (4.5%). 

Employment growth

This sluggishness in sales performance is reflected in moderations to employment growth. Companies are increasing their headcounts by only 1.0% in Q1 2020, over one percentage point slower than in Q1 2019 year on year.

Selling and input prices, and profits growth

Companies are seeing very limited selling price rises (1.1%), and these continue to trail input price inflation (2.0%). The combination of slowing sales growth and increasing costs appears to be impeding profits growth. In the year to Q1 2020 profits are expanding by 2.4%, comparing unfavourably with growth of 3.6% in Q1 2019. 

Business challenges

Consistent with the weak sales environment, demand factors are a key concern for businesses. Marketplace competition is an increasingly pressing issue for 39% of businesses, up from 31% in the 12 months to Q1 2019. And customer demand is a growing source of difficulty for 41% of companies, significantly higher than the 28% reported in Q1 2019 year on year. 

Investment growth

Against a backdrop of weaker profits growth, businesses are also planning to restrict investment spending in the year ahead. Capital investment and Research & Development (R&D) budgets are both currently rising by 1.7% but are expected to increase by just 0.6% and 1.2% respectively in the next 12 months. Staff development budgets are up by just 0.8% year on year in Q1 2020, consistent with the limited increases in headcounts over the last 12 months. And only a small improvement is expected in the year ahead, with projected staff budget growth of 1.3%. 

Prospects for the next 12 months

Businesses are, however, more upbeat for the year ahead in terms of sales. Domestic sales are projected to rise by 4.0% over the coming 12 months. And exports are forecast to increase by 2.5%, a slight improvement on the current rate. In turn, companies foresee profits growth of 4.5% in the year to Q1 2021.