While UK companies are is struggling to find confidence, there are some reasons to be cheerful, according to the latest ICAEW Business Confidence Monitor. Companies have seen improvements in profit growth, capital investment and sales volumes and are expecting continuing growth in 2018.
Key findings for Q4 2017 in the report suggest:
- Although the Business Confidence Index remains in negative territory, it improved from the shock of the General Election from -8 in Q3 to -3.4 in Q4 2017
- Profits growth has seen an improvement rising from 3.4% in Q3 to 4.1% this quarter. This is expected to increase to 4.7% next year – consistent with rising sales and a slowdown in input price inflation.
- Slow GDP growth is forecast for Q4 at 0.2%, which follows ONS figures of 0.4% growth in Q3 2017
- Domestic sales growth remains steady while export sales are slowly improving with higher growth expected in the year ahead
- Businesses expect continued job creation but salary increases remain steady indicating that a price-wage spiral is not a major risk
Michael Izza, ICAEW Chief Executive, said “While businesses are struggling to be confident in the current environment, there are reasons to be more optimistic. Businesses are controlling costs and there is finally some improvement, though small, in export sales growth. The IT, Construction and Business Services sector are all modestly positive. Even the retail sector has seen an improvement in confidence – albeit still in negative territory.”
“These findings highlight the cliff edge that the UK economy is on at the moment. The recent interest rate rise was not unexpected but any sudden shocks from the Chancellor at the Autumn Budget could have a serious impact. Businesses to some extent know that uncertainty is to be expected due to Brexit but they must again see good reason to invest in technology, training and development, as well as new products and services to help drive economic growth in 2018 and beyond.”
Export sales are slowly improving with growth of 3.5% and 3.9% expected in the next 12 months as the fall in sterling finally begins to reflect in more selling. Sales volume growth now stands at 4.4% compared to 3.7% the year before and input cost inflation has flattened off and is expected to fall to 1.7% in 2018. Wage growth remains steady at 1.9% as companies control costs despite planning on increasing headcount by 1.8% in the year ahead. Staff development, research and development budgets and capital investment growth have all increased moderately. Although not spectacular, the findings are more positive than previously.
Among challenges to an organisation’s performance, regulatory requirements are concerning an increasing number of companies. This reflects various regulations introduced this year such as the Apprenticeship Levy, Gender Pay Reporting and forthcoming General Data Protection Regulation (GDPR). The availability of non-management skills is also becoming a greater challenge than 12 months ago (24%) compared to management skills (16%), perhaps reflecting the impact of Brexit on migration.
The IT (+7.8), Energy (+4.4), Construction (+3.6) and Business Services (+1.5) sectors all had positive confidence levels. With Christmas imminent, the sentiment of the Retail sector improved from -23.4 in Q3 to -8.9 in Q4. Regionally, confidence in Wales and the South West has rallied but London remains the most pessimistic region at -7.8. The capital has been below the UK average in all but one quarter since the EU Referendum.