Regulation and staff turnover becoming bigger challenges

Regulation is the biggest challenge facing businesses as new legislation impacts on companies according to the latest ICAEW Business Confidence Monitor (BCM). With business confidence moving back into positive territory and to its highest level for two years, staff turnover is also an increasingly growing concern as businesses find it difficult to replace departing workers, especially in the Construction and Business Services sectors.

Key findings for Q2 2018:

• Confidence has turned positive with an increase from -1 in Q1 2018 to +7 – its highest level in two years.
• Export and domestic sales growth are increasing with firms that export more confident and showing stronger sales than those that do not.
• Profits have grown by 4% over the last 12 months with similar growth expected in the year ahead.
• The increase in confidence is apparent across all types of company and across most sectors and regions.

Michael Izza, ICAEW Chief Executive, said “There is definitely a sense of ‘the joy of spring’ in this quarter’s figures with confidence rising across most regions and sectors. Export and domestic sales growth are both improving and businesses are controlling price inflation and labour costs. As business leaders seek to drive their organisations forward, they are increasingly struggling with a growing tide of regulation with further legislation to come.  Long term investment, although improving, is still modest and given the lack of certainty about the future, businesses are more focussed on the ‘here and now’. Confidence is very fragile and the upward trend could be derailed by any setback in the economic outlook.”

The overall increase in confidence is widespread, let by IT and Communications and Manufacturing. Confidence has also improved in 10 out of 11 regions and is positive everywhere. This includes London which was particularly weak in the first quarter of this year. There is little difference in confidence between companies of different size and ownership.

Since the EU referendum vote in June 2016 evidence of a gap in confidence has emerged between companies that export and those that do not. This quarter it stands at +12.4 for those that export and +1.7 for those businesses that rely on domestic sales.  Companies that export have been seeing stronger sales growth of 5.2% and many expect this trend to continue encouraged by progress in Brexit negotiations. Given recent fluctuations in sterling however it will be significant if this improvement continues in the rest of 2018.

Regulation is now clearly the strongest growing challenge facing companies, reflecting a variety of legislation introduced, including Gender Pay Gap and the forthcoming General Data Protection Regulations (GDPR) requirements. With further legislative changes with Brexit this is only expected to worsen. Staff turnover is also becoming a greater challenge as more businesses are finding it difficult to replace departing workers. Sectors such as Construction and Business Services who employ large numbers of migrant labour are especially finding staff turnover difficult.