Confidence dips in Q3 as businesses start to lose faith

Monday, August 22, 2011 | Posted by: Fiona Cullinan
Categories: Economy, Thought Leadership | Tags: business, economy, ICAEW, Scott Barnes, Michael Izza, confidence, business news, BCM, Business confidence monitor, index, monitor, Q3 2011

The latest ICAEW/Grant Thornton UK Business Confidence Monitor (BCM) shows a decline in confidence this quarter – read on to find out why.

There has been a decline in confidence this quarter as UK businesses begin to feel the impact of global economic turmoil and the lack of progress by the Government to make Britain more business-friendly on the tax front.

The full report and analysis is available on the ICAEW BCM site – or read on for the key highlights. UPDATE: We also have some video comment and analysis available in Insight: Why is UK business losing faith – and what can government do about it?

What is the ICAEW/Grant Thornton UK Business Confidence Monitor?
Sponsored by Grant Thornton, the BCM has been gauging UK business sentiment since 2003. It tracks a range of key economic indicators and also surveys around 1,000 ICAEW members each quarter to monitor the key concerns of UK plc and help provide a steer for businesses.

The key findings for Q3 2011 show:

• The BCM Confidence Index has fallen from +13.7 to +8.1 in Q3 2011 and is at its lowest level since Q3 2009 when the UK was still in recession.
• The positive trend for growth has faltered, with firms seeing turnover and profit growth weakening as well as revising down future expectations.
• An increasing number of businesses see tax and red tape as major challenges, with 40% believing regulation is a greater burden than 12 months ago.

Other headlines include:
• Regulation continues to challenge firms – particularly the lack of government urgency in tackling red tape, and the tax burden.
• Key business performance financial indicators have weakened – many firms have also revised down their expectations for turnover and growth over the next 12 months.
• Cost pressures could stall private sector employment – rising input prices and increased pressure on profit margins may slow growth.
• Confidence still falling in manufacturing and retail sectors – a worrying sign for manufacturing if the rebalancing of the economy away from a reliance on services is to happen.
• Export intentions remain positive –reported annual export growth of 4.4% suggests businesses recognise the growth opportunities for British companies that overseas markets represent, albeit against a backdrop of growing weakness in the Eurozone and US economies.

The expert view:
Michael Izza, Chief Executive of ICAEW, said of the Q3 report:

“Businesses are doing their best to grow the economy in a tough climate, but they feel little progress has made on tackling regulation and improving tax competitiveness. Six months ago, the Government described its ‘Plan for Growth’ as “an urgent call for action.” The plan is sound, but the urgency is lacking. We need to get on with implementing the plan – reforming the tax system to make it simpler and more competitive, making Britain business-friendly and boosting skills.”

Scott Barnes, CEO of Grant Thornton, added:

“There is little surprise that confidence among the businesses surveyed has fallen to its lowest level in almost two years back when the recession raged. Although businesses are predicting growth in turnover, exports and profits, the fragility of our largest overseas markets is worrying. The UK economy will however grow this year, albeit weakly, and I believe we will avoid the double-dip recession. That may be little consolation today but we have to look to longer-term recovery rather than quick fixes.”

For more findings and analysis, read the full ICAEW/Grant Thornton UK Business Confidence Monitor.

You might also find these posts useful:

* My Big Decision – hear about the life-changing moments of 10 business gurus
* Will the money start moving in 2011? Industry experts share their thoughts on our findings
* Financing improves but mid-market remains frustrated