UK businesses confident in prospects for business
Business confidence has turned positive for the first time since the EU referendum, according to the ICAEW business confidence monitor for quarter 2 (Q2) of 2017. Confidence is highest in industries with strong export expectations but positivity has increased across all sectors.
The increase in confidence correlates with increased sales and profit forecasts for most sectors and a small but welcome predicted growth in the total value of goods and services provided in the UK during the year (GDP) forecast.
Last quarter, almost every region in the country had a negative view of their economic prospects, including the East and South East of England. The East has seen a particularly large swing in positivity from -18% to +3%.
Strong growth in domestic sales as well as, for some sectors, export growth, are likely drivers of the positive forecasts. Exports are up 3.1% on last year, although still not as strong as had been predicted from the drop in the value of sterling, with the manufacturing and IT & communications sectors being particularly buoyant.
Skills shortages continue to decline and this, coupled with lower levels of job creation, means there are less jobs remaining unfilled in the marketplace. This has enabled businesses to keep wage increases to below inflation levels (1.9%), which is helping them control costs.
Input costs remain a concern, with energy costs and the high cost of imports (1.3% rise over the previous quarter) squeezing margins.
Where sector prospects are concerned, the winners are manufacturing, IT & communications, construction and property. Retail, wholesale and consumer-led services are being hit particularly hard as prices rise ahead of incomes and individuals look to cut back on discretionary spending.
Overall, there has been quite an upward shift in outlook between the Q1 and Q2 reports. It will be interesting to see what impact the outcome of the general election has on the next quarterly confidence monitor. The Institute of Directors snap survey of its members, launched immediately after the election decision was know and published today, shows a dramatic drop in confidence. It remains to be seen if this initial reaction is sustained or smoothed out in the quarter results as the situation evolves.
In times of uncertainty, it becomes even more important to understand the drivers of your business. A robust business forecast can help you predict the impact of increased supplier costs, reduced sales and excess capacity on your profit. More importantly, it can help you decide what to do about it and when.
For help and advice on predicting your business finances, contact Adrian Le Roux.
Click to read the full Confidence Monitor report.
You might also like to read our summary of the quarter 1 confidence monitor.