Businesses may need to take a greater ‘leap of faith’ and invest for the future despite the current uncertainty. In the ICAEW’s latest Economic Forecast, it predicts GDP growth of 1.6% in both 2017 and 2018, 0.8% slower than the average for the past three years. Despite the lack of certainty on Brexit, the economic conditions for capital investment remain positive and would help drive growth.
Michael Izza, ICAEW Chief Executive, said “Businesses are in no rush to make major capital investments at the moment. With corporate balance sheets and profitability healthy, borrowing costs low and demand from the UK’s major trading partners strong, businesses could be investing now for the future. Without this investment, growth will continue to slow, especially as we can no longer rely on consumers to keep spending at the rate they were.
“The squeeze on household incomes is set to continue for the next few years at least and there is little that Government can do to reduce inflation, other than cutting indirect taxes. Given that consumer spending added an average 1.5% to growth from 2014-2016 and this contribution is likely to slow to 1.1% in 2017 and 0.3% in 2018, it is now up to businesses to support more growth. They need to look for opportunities in overseas markets, make efficiency savings and invest in innovation, talent, new products and services to create a longer term return.”
The ICAEW Economic Forecast for Q3 2017 which has shown:
- Economic rebalancing continues, but at the price of slower growth. Economic growth strengthened in Q2 2017, but evidence from the ICAEW Business Confidence Monitor™ suggests that Q3 may seem the rate of growth slow. Business should benefit from gradually strengthening export opportunities, even as a consumer spending slows.
- Capital spending set to fall in 2018. Capital spending was stagnant in Q2 2017 and ICAEW predicts a fall in spending of 1.1% next year. But the very strong position of corporate balance sheets and the boost to exporters’ profitability from the weak pound means that financial conditions for investment remain good – if the economic and political uncertainty ease.
- Workers and businesses set to continue prioritising jobs over pay growth. Businesses continue to create jobs at a good pace this year, driving unemployment to the lowest rate since 1975. There is caution ahead however and ICAEW expects an upturn in unemployment in 2018. Wages will continue to stagnate in real terms, as workers and firms prioritise protecting jobs over pay growth.
- Squeeze on households underlines need to diversify and invest. The squeeze on household spending will continue, thanks to still-high inflation and stubbornly weak wage growth. In order to grow, businesses will need to more effectively tap into overseas markets. As well as making efficiency boosting investments.
Michael Izza adds: “This is a crucial time for Government as we go into Autumn. The Chancellor has a key opportunity in the forthcoming Budget to announce major policy changes that will encourage businesses to invest and export. Without this boost, I fear winter is coming for the UK economy.”