Growing evidence that the UK economy may be on a downward spiral is suggested in the latest (Q2 2018) UK’s Credit Managers’ Index (CMI) which has hit a five-year low. The quarterly barometer from the Chartered Institute of Credit Management (CICM) shows an Index that has fallen by 1.0 point to 54.4. This is 5.7 points down on Q2 2017.
Manufacturing is particularly on the decline, down 1.2 points to 56.0, which is worryingly eight points down from the same point last year. Services also saw a drop, down 0.7 points to end the quarter on 53.9. Both figures, however, remain above the critical 50-point threshold.
The headline CMI is now more pessimistic than the market in Q2 2018, following an eight percent increase in FTSE All Share. UK manufacturers have outperformed the market in 2018 but June saw a considerable tightening in prices. The index of favourable factors all remain above the 50-point threshold, although Order Book (down 1.8 points to 68.0) and New Credit Applications (down 1.3 points to 65.1) both dropped. Credit Sales had a steady quarter, however, up from 70.6 to finish on 71.1.
In stark contrast, almost all of the unfavourable factors were at 50 points or less, which is concerning. All unfavourable factors have steadily declined over the past year, although some have been more drastic than others. Days Sales Outstanding (DSO), a typical measurement for late payment, is down 13.7 points from Q2 2017, while Bad Debt Provision has dropped 11.2 points in the same period.
Philip King, Chief Executive of the CICM, says the latest results are troubling: “We always have to judge the results with caution as things can often change quickly, and Q2 has proved exactly that. It has been a challenging quarter with some concerning results and outcomes. It appears that pessimism around future trading conditions has grown, which suggests that the UK may be heading on a downward trend.”
From a regional perspective, five regions are below the 50-point threshold, with Wales (37.5) and the North East (18.3) substantially short of the mark. Scotland continues to set the example, as the only region over 70 points. Not too far behind is the South East and East of England, the only other regions above the 60-point mark.
The CMI’s sector-specific results show little change from Q1, with all but three of the 19 sectors meeting or exceeding the positive threshold. As in Q1, Insurance (41.7), Basic Resources (47.5) and Chemicals (40.0) continue to struggle. Personal and Household Goods and Oil and Gas remain the only sectors to reach 70.
The CMI is a diffusion Index, producing scores of between one and 100 (typically in a range of 40 – 60). Ten equally weighed factors are included – three favourable and seven unfavourable and the Index is calculated on a simple average of 10 factors.