Business confidence climbs to highest point in 2 years

Business confidence climbed to its highest point in 2 years, reaching a score of 16.7 in the second quarter of this year, according to a survey by the Institute of Chartered Accountants (ICAEW) in England and Wales.

The increase in confidence was driven by falling inflation and forecasts for better sales. Strong wage growth and a decrease in businesses’ costs also contributed to the positive outlook. Financial services firms and utilities companies were the most confident, while retail and property businesses experienced increased pessimism. The survey also revealed that salary growth remained unchanged at 3.7% in the second quarter.

The data showed that business sentiment rose again for the third successive quarter, as input cost inflation continued to ease, domestic sales stabilised and exports improved, feeding through to stronger anticipated profits growth.

Retail & Wholesale, Manufacturing & Engineering and Property are not sharing the improvement in confidence. Sentiment is strongest in service sectors alongside Energy, Water & Mining and Transport & Storage.

Despite expectations of strong sales growth, concerns about customer demand are widespread and late payments are a growing issue in some sectors. Regulatory worries are highest overall and, although they are concentrated in Banking, Finance & Insurance and Energy, Water & Mining, have risen in other sectors.

Companies expect to grow their capital investment at around the historical average but plan to continue to grow their workforces at a faster rate. The employment outlook aligns to sectoral confidence with weak growth expected in Retail & Wholesale, Manufacturing & Engineering and Property.

Sentiment in all regions remains positive but the gap in confidence between them has narrowed.

Suren Thiru, economics director at the ICAEW, said  “These figures suggest that businesses shrugged off any distraction caused by the general election, as lower inflation and stronger expected sales growth drove an encouraging uptick in confidence in the second quarter.”