UK business confidence slides to lowest in four years

Latest Business Confidence Monitor from ICAEW and Grant Thornton reports four year lows.

The ICAEW Grant Thornton Business Confidence Monitor (BCM), now in its tenth year, shows a staggering decline in confidence in Q2 2016, first flagged as a sharp fall at the end of the first quarter of the year. The report, which presents the survey findings of a poll of a group of 1,000 Chartered Accountants, shows a continued fall in cross sectoral business confidence over the past two years and the lowest figure for four years, down from +11.4 last quarter to just +0.8 in Q2.

Chief Executive of the ICAEW, Michael Izza, stated that a combination of factors has contributed to the current negativity, citing global concerns, such as slowing economic growth and the threat of an economic crisis in China; and, closer to home, the impending UK EU Referendum and business response to the recent March Budget. This negative sentiment is shared across UK businesses, of different sizes and ownership structures.

Business sectors

Confidence has declined across nearly all business sectors, with business services and the financial sector bearing the brunt. Confidence has fallen into negative territory for the banking and finance and property sectors, with a sharp decline in confidence in the construction industry since Q1. Energy, water and mining, perhaps unsurprisingly, given the volatility of commodities and export/import markets, remains firmly within negative territory.

The drop of confidence can be seen across the board, from UK listed companies, to FTSE 350, large private companies and SMEs with a headcount of less than 250.

Growth

The UK experienced only a small percentage of growth in GDP of 0.3% in the second quarter of the year, following a slowing of GDP growth in 2015.

Domestic sales growth has seen a considerable slowdown, but export sales growth has strengthened slightly, in part due to the currency fluctuations of sterling’s main pairings – the euro, in particular, which has enjoyed strength against sterling in this last quarter.

Profit growth across business sectors remains weak.

Workforce expectations

Skills shortages and issues with staff turnover were cited as less worrying than they were last year, yet employment growth is likely to slow down in the coming quarter, with a reluctance to hire new staff reported in the survey.

Risk

One of the biggest contributing factors to this worrying low in confidence is the inability of companies to plan effectively, given current economic factors. The ICAEW’s Michael Izza’s echoes this in his response to the report: “Businesses cannot plan with confidence and this applies regardless of sector, ownership or size of company.”

Carl Hasty, Director at Smart Currency Business, emphasises the importance of a carefully thought out risk management strategy in the face of this ongoing uncertainty:

“Whether building a currency hedging strategy, or making use of options to factor in currency risks, by assessing your exposure to currency risk and creating the right strategy around it, you can go some way to protecting your bottom line at a time when other areas of the company’s financials are under pressure or even eroded. This is becoming all the more important in light of current market conditions.”