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Business confidence could be on the slide as the economic abyss unfolds

The BCM Confidence Index is now in negative territory falling from +0.8 in Q2 2016 to -10.2 this quarter, a fall of 11 points, revealing a picture of faltering business confidence.

However, while the Index fell drastically after the EU Referendum, confidence has crept up since that point as businesses take stock. GDP growth is projected to be 0.1 per cent in the third quarter of 2016.

Exports are expected to improve, albeit modestly, due to the falling pound and businesses expect domestic sales to be weaker.

Capital investment growth is expected to reduce to under 1 per cent along with research and development while employment growth and staff development spending is expected to weaken.

ICAEW director of business Stephen Ibbotson says that UK businesses are resilient and after the political shock of the referendum result, many are just getting on with delivering their business plans and moving forward.

‘UK plc is grateful that the new government was established quickly but decisions will need to be made swiftly to build confidence, which has been following a downward trend for the last two years,’ he says. ‘Encouraging businesses to invest as well as explore new markets has to be the immediate priority for the government whilst it develops its vision for the UK economy once we have left the EU.’

He adds that time will help rebuild business confidence as businesses adapt and understand the environment, bearing in mind that the UK will still be in Europe for at least two years. ‘Companies need to make the most of any future opportunities that may arise and we will be working with government to ensure the UK is the best place to do business.’

The construction, property and transport and storage sectors saw the largest decline in confidence this quarter, with manufacturing seeing a smaller fall.

Given lacklustre growth since 2012, many in this sector are already used to the low growth environment and have strategies in place to deal with it. Spare capacity in businesses increased however reflecting slow growth with 75 per cent of manufacturers having spare capacity.

Staff turnover and skill shortages diminish

Problems with skill shortages and staff turnover continue to diminish compared to a year ago but employment growth is expected to slow in the next 12 months as businesses assess the new landscape.

Post-Brexit, expectations are for significantly lower salary increases from 2 per cent in the year ahead prior to the vote to just 1.2 per cent after. This reflects the low profit growth expected with no increases in selling prices expected.

Further reading on business confidence


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