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Global economic turmoil damaging business confidence 22 August 2011

The joint survey, by accountancy firm Grant Thornton and the Institute of Chartered Accountants in England and Wales (ICAEW), shows a widespread decline in confidence as global economic turmoil has impacted businesses’ future plans.

The UK Business Confidence Monitor (BCM) also shows that 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.

The monitor takes a measure of confidence among business owners and this index has fallen from to +8.1 in the third quarter of 2011, from +13.7 in the second quarter, and is now at its lowest level since the second half of 2009, when the UK was still in recession.

The confidence index has been on a downward trend since the first half of 2010.

Douglas McWilliams, chief executive of the Centre for Economic and Business Research (cebr), said: “The positive trend in turnover and profits growth which began in the middle of 2010 has faltered this quarter. Export growth remains robust, although expectations for future growth in exports have been revised downwards this quarter.”

McWilliams, an economic partner with the ICAEW, added: “Firms continue to report input prices growing more strongly than selling prices, implying an ongoing squeeze on profit margins. This may also be putting under threat hopes for private sector jobs growth.”

He said that export growth is essential at a time when neither government spending or household consumption can be relied on to generate robust expansion.

Business owners who took part in the survey bemoaned the lack of progress to make it easier to do business in the UK.

Four in 10 firms, 40%, told the survey that regulatory requirements now pose a greater challenge than 12 months ago, up from 33% in the same quarter last year.

Despite the introduction of a one in, one out rule, for business regulation and a cut in corporation tax from 28% to 26% in April, many British firms still feel swamped under bureaucracy and red tape.

The BCM also brought to light that many firms are seeing turnover and profit growth weakening, forcing them to revise down future expectations.

This follows expectations that the Office for Budget Responsibility will revise down its own growth forecast of 1.7% for the current year in its forthcoming autumn statement.

Overall, the survey showed that a positive trend in financial performance for many businesses has started to falter.

Average turnover growth for businesses who took part in the survey, for the 12 months to the third quarter of 2011, stands at 3.6%, while average gross profit growth is reported at 3.1%.



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