30 Jul 2012

Economic woes hit business confidence

Businesses are having to be more realistic about their economic prospects as the recession bites harder, the latest ICAEW/Grant Thornton UK Business Confidence Monitor shows

Confidence has fallen dramatically since the last quarter, which recorded an upsurge in confidence to +12 and now stands at just +1.1 – the fourth largest quarterly decline since the confidence monitor began. The fall implies that GDP will grow by just +0.1% in Q3 2012.

Continuing weak domestic demand for goods and services has led businesses to revise down their expectations of future turnover and profit growth. Reported growth in selling prices has fallen to its lowest level for more than a year and inflation is unlikely to be a problem for any time soon.

The survey, which covers 1,000 chartered accountants at senior levels in business throughout the UK, shows that they still have faith in export growth despite the fact that exports have been hit badly by the slowdown in global trade. Forecast growth in exports is positive, with an increase of 3.6% predicted for the next 12 months – a similar rate of growth for exports to that experienced before the recession.

Businesses also report they have “cautious” plans to take on new staff. The number of staff recruited has increased by 0.9% over the last 12 months and looks set to rise by 1.2% over the coming year.

The least confident business sector was retail, which fell from +10.6 in Q2 to -6.4. This confirms findings of today’s PwC insolvency survey, which shows that the number of retailers going out of business between April to June jumped sharply, partly because of the wet weather. According to the accountants, 426 retailers went under during Q2, compared with 386 a year ago.

Construction and property also showed large falls in confidence. Construction fell from +5.5 last quarter to -8.1 while property moved from +4.5 to -2.5.

Scott Corfe, senior economist at Cebr, said, "In line with falling confidence, key indicators show business performance slipping back in the 12 months to Q3 2012. Gross profits and turnover have grown by 3.2% and 2.3% respectively, both down from 4.1% for the 12 months to Q2 as economic conditions remain tough. Expectations for growth over the coming 12 months have also weakened.

"On the bright side, exports offer some relatively good news. This quarter, businesses report exports growing year on year by 3.7%, only marginally down from annual growth of 4.1% reported in Q2 2012. Businesses also expect exports to hold firm over the coming 12 months, anticipating growth of 3.6%. So an export-led recovery is showing some signs of emerging even if domestic demand remains a major drag on the economy.

"With consumers and government deleveraging, the onus lies with private enterprise to drive growth over the coming months. Yet businesses appear to lack the confidence to deliver a sustained economic recovery – indeed, in this quarter’s BCM, businesses expect capital investment to grow by a paltry 1.0% over the next 12 months. Until UK plc is confident enough invest in the future, the economic outlook is likely to remain frail. "



Julia Irvine