Business confidence improving but GDP growth to remain sluggish

Business confidence has improved but still remains in negative territory, according to the latest ICAEW Business Confidence Monito (BCM).  The Confidence Index has now been negative for 6 out of the last 7 quarters – equal in length, but not depth, to the global financial crisis.

Key findings for Q1 2018:

• Confidence remains negative although it increased from -3.4 in Q4 2017 to -1 this quarter. The last few weeks suggests that the corner may have been turned however with the Index turning positive.
• Growth in the UK economy, expected to be just 0.3% this quarter, will be slower than the Eurozone and other global markets this year, compounded by the sterling rebound and rise in commodity prices.
• Different sectors are facing different conditions and challenges, leading to wide variations in confidence. IT & Communication companies are buoyant while Banking, Finance & Insurance and particularly Property are the weakest.
• Business regulations and availability of skilled workers is becoming more challenging compared to a year ago.
• London has a particular shortfall in confidence compared to the rest of the UK and SMEs are no more confident than FTSE 350 companies.

Michael Izza, ICAEW Chief Executive, said “Despite domestic sales growth improving slightly, export sales growth is not. This is concerning if it means that businesses are not taking advantage of stronger growth in both the Eurozone and the rest of the world. Companies cannot rely on demand locally. Domestic sales are under pressure and further interest rate rises expected in 2018 will turn the screw on consumers even further. Different sectors are experiencing a variety of challenges and hence different levels of confidence.  IT and Communication companies are mostly optimistic. Manufacturing sales are improving but there are growing challenges finding people with non-management skills. Rising oil prices and exchange rate changes may also have a negative impact in the months to come. At the moment, the UK economy appears to have a cold that it cannot get rid of.”