Julia Irvine 14 Aug 2017 10:14am

Business confidence undermined

Confidence among UK businesses has taken a major knock in the past three months, as a result of the snap general election, the hung parliament and the uncertain outcome of the Brexit negotiations, the latest ICAEW Business Confidence Monitor has found

The index went into negative territory in Q3, falling from 6.7 in Q2 to -8 in Q3, indicating that the upturn in Q2 was momentary in nature.

This was not entirely unexpected, said ICAEW director of business Mathew Rideout. “Since the announcement of the general election, a vacuum has been left with government’s attention swallowed by a hung parliament and the start of EU negotiations.

“The industrial strategy has been lost in the void, coupled with no clear signal towards post-Brexit policy. As a result, businesses cannot see through this haze of uncertainty and are struggling to look further than the end of the next quarter in terms of their decision making.”

The uncertainty continues to have an impact on the UK’s economic indicators. The depreciation in the value of sterling has not resulted in the expected boost to exports, and Q3 GDP growth is forecast to be 0.2%, down from 0.3% in the previous quarter.

Input prices are continuing to go up by 2.5% year-on-year, against a 1% growth in in selling prices. This is impacting on household incomes since businesses are trying to keep a cap on overall cost increases by holding wage growth at below inflation rates.

And businesses are failing to invest at the level needed to boost economic growth despite the need to look ahead to a future post Brexit.

Job creation, staff development and R&D budgets are growing far more slowly than revenues, the BCM revealed, although this is perhaps not surprising since more than 50% of businesses are working at below capacity.

Rideout argued that investment in talent, new products and services, and new markets should be happening now, so that businesses are well-placed to take advantage of the opportunities in life after the EU, and he called on government to explain what transitional arrangements business should expect.

“They need to be planning now and cannot wait until early 2019 to find out,” he said.