Business confidence has fallen into negative territory suggesting weak economic data, Brexit divisions and global trade disputes have taken their toll on UK companies.
The latest ICAEW Business Confidence Monitor (BCM) reveals a fall to -0.2 this quarter, following three successive increases – highlighting the fragility and lack of certainty for businesses in many sectors and regions across the UK.
Weak confidence suggests continued subdued GDP growth of just 0.4 per cent for Q2 and 0.3 per cent for Q3 2018.
Regulatory requirements continue to dominate the list of rising challenges with 58 per cent citing them as a bigger challenge – the highest since the survey began.
Businesses continue to control costs by managing salaries, reducing staff development budgets and capping capital investment.
Iain Wright, ICAEW Director of Corporate and Regional Engagement, said:“This is a difficult time to run a business. With the increase in the regulatory burden along with the uncertainty with Brexit, global trade disputes and weak economic data, it is not surprising that confidence is so fragile. The lack of clarity for UK plc has continued for far too long and, without significant action by Government, the fragility in confidence will be prolonged.
“One area which companies are clearly increasingly concerned about is regulation. Businesses have just had to deal with GDPR, which has clearly left a negative impression. However this is not about single pieces of regulation, but rather the perception of a growing deluge of onerous bureaucracy, which is why regulation is now the highest concern since the survey began. Staying on top of regulation takes businesses away from winning new orders, enhancing competitiveness or investing for growth. With further changes expected such as Making Tax Digital (MTD), as well as exiting the EU, businesses are fast running out of time to get prepared and are rightly anxious about an expected further wave of regulation, dampening confidence and impacting upon growth.”
Exports now outpacing domestic sales
Exports are now outpacing domestic sales, with a 3.9 per cent export rise in the last 12 months compared with 3.5 per cent for domestic sales. Selling prices have increased by 1.6 per cent, the fastest rise since Q4 2008, as oil prices remain high and input price inflation continues at 2.5 per cent, despite an expectation it would fall. As a result companies are managing costs by keeping salary increases low and low staff investment.
Challenges to businesses dominated by regulation
Regulation continues to be the strongest growing challenge facing companies, reflecting a variety of legislation introduced, including Gender Pay Gap and General Data Protection Regulations (GDPR) requirements. Nearly 60 per cent of businesses cite regulation as their biggest challenge, compared with 43 per cent a year ago. This is followed by competition in the marketplace and customer demand.
Commenting about the research findings Chirag Shah, CEO of Nucleus Commercial Finance comments: “Business confidence has shot back down into negative territory, despite positive progress for the last 12 months. This change reflects a fragmented economy and reduced domestic demand. I believe confidence throughout the UK will bounce back once Brexit uncertainty and pressure eases. Businesses should therefore continue their pursuit of long-term goals and not let the short-term impact their opportunity for growth.”