ICAEW Business Confidence Monitor (BCM): South East
Q2 2019: Weak confidence is reflected in subdued predictions for sales and investment
Confidence for the South East is in negative territory in Q2 2019, even though companies report healthy sales and profits growth. However, businesses are notably downbeat for the year ahead, with sales and all forms of investment spending forecast to expand at slower rates.
Business confidence trend in South East
The Business Confidence Index in the South East has weakened in each of the last four quarters and in Q2 2019 stands at -15.6. This is the region’s lowest score in a decade. It is likely to reflect external factors such as continuing Brexit uncertainty.
Domestic sales and exports
Certainly, businesses report fairly healthy sales growth in the year to date. Domestic sales growth has been stable, rising by 4.4% in Q2 2019, the same rate as a year ago. And export growth is ticking upwards, increasing by 3.7% in Q2 2019, compared to 3.3% in the previous 12 months.
Increases in exports and domestic sales are, in turn, supporting profits. Companies in the South East are achieving profits growth of 4.5% this quarter, comfortably outperforming the national average, as well as the historical norm for the region of 3.5% (between Q2 2004 and Q2 2019).
The relatively healthy sales performance in the region is also consistent with a falling proportion of companies that report customer demand as a growing issue, from 37% a year ago to 31% in Q2 2019. And although regulatory requirements remain the most widely cited growing issue, a lower percentage (43%) of companies report these in Q2 2019 than a year ago (51%).
That said, the weakness to overall business confidence seems to be revealing itself through the investment rates of companies. Growth across all forms of investment are slower when compared to a year ago. Staff development budgets are rising by just 1.4% year-on-year, following an expansion of 2.2% in the year before. Companies are also increasing capital investment by 1.6%, markedly weaker than the 3.0% reported 12 months ago. Research & Development (R&D) budgets are expanding by 2.2%, relative to 3.1% in Q2 2018.
Prospects for the next 12 months
Weak business confidence is also linked to expectations for the next 12 months. Unlike most other regions in the UK, companies in the South East foresee weaker rates of growth for exports (2.8%), domestic sales (3.6%) and profits (3.3%) in the year ahead. Businesses in the South East are also projecting further slowdowns in investment growth, with capital investment spending expected to remain at its current level and R&D budgets rising by just 0.5%.