Business confidence in the South East has fallen as businesses adopt a ‘wait and see’ approach following increasingly uncertain Brexit negotiations with the EU, according to a survey conducted by the Institute of Chartered Accountants of England and Wales (ICAEW).
The quarterly ICAEW Business Confidence Monitor, a survey of 1,000 chartered accountants in business leadership roles, reports that business confidence across the South East has fallen into negative territory, as businesses are adopting a more cautious approach despite a backdrop of improved sales, turnover and profits.
The survey asked: “Overall, how would you describe your confidence in the economic prospects facing your business over the next 12 months, compared to the previous 12 months?”
A score of +100 would indicate a ‘much more confident’ outlook and a score of -100 a ‘much less confident’ outlook for the year ahead. The survey reports a position of -10 for the third quarter of 2017, down from a positive score for the second quarter of the year.
Accountants, financial and business advisers Kreston Reeves has analysed the ICAEW’s Business Confidence Monitor data for the third quarter of the year, as part of shaping the advice and support they give to the clients across Kent, Sussex and London.
Survey highlights include:
- The latest Sussex business confidence index stands at -10.1
- Sales growth is up 4.8% year-on-year
- Domestic sales and exports are expected to grow by just over 4% in the year ahead
- Turnover growth is helped by an increase in selling prices at 1.8% compared to 0.4% a year ago
- Input prices, such as raw materials and fuel, are growing significantly faster than last year at 3% this quarter, compared to 0.9% in Q3 2016
- Profit growth is predicted to rise to 4.9% from 4.5% over the past 12 months
- Capital expenditure is anticipated to rise by 2.1% over the next 12 months
Our analysis of the ICAEW Business Confidence Monitor data for the third quarter of 2017 paints an interesting picture.
On the face of it, businesses look to be doing well, with particular gains in work in the manufacturing and transport and storage sectors: turnover, growth, profits and expenditure are all increasing. Yet businesses say that they are less confident today about the future than they were earlier in the year.
The successes that businesses across the South East are reporting in this survey in terms of increased sales and profits are likely to be due to the planning and activity of businesses over the past 12-18 months. And business are seeing the rewards of earlier activity.
In addition to the increasingly uncertain Brexit negotiations with the EU, the muddied General Election will have added further frustrations for businesses, many of which will still remember very clearly the financial crash of a decade ago. The reported fall in confidence is based on hopes and fears for the coming 12 months.
Businesses crave certainty, where they can control costs, such as wages and protect profits. For many, the recent sudden weakening in sterling is making future planning and investment hard. That little material progress appears to have been made on in the Brexit negotiations will leave businesses nervous, particularly those with strong European connections.
Brexit will inevitably lead to us being a more self-contained nation and there is a time adjustment for this to happen. Businesses for now need to ‘keep calm and carry on’ and look beyond the next few months. Rather than hunker down, businesses should look to invest in talent, new products and services, exploring the opportunities that will undoubtedly exist in a post-EU Britain.
And this is where good advisers to businesses can really help. At Kreston Reeves, for example, we will spend time with businesses helping them with their business planning, forecasts and practical cashflow management. This will include scenario planning with business owners on how different futures might affect their business, stress testing around exchange rate exposure and the rising costs of imports, and also the impact of potential interest rate rises.
Government too needs to articulate what transitional arrangements there will be for businesses across the South East, helping instil a greater degree of confidence to underpin spending decisions. We simply cannot wait until 2019 to see what kind of economic and trading landscape we will be working in.
Richard Spofforth is the Sussex regional managing partner at leading accountancy, business advisory and financial services firm Kreston Reeves. He can be emailed on firstname.lastname@example.org.