Businesses ‘resilient’ despite Brexit confidence slump, says ICAEW

Business outlook in Q3 fell from a score of 0.8 to minus 10.2, as firms absorbed the shock of the UK voting to leave the EU in June, according to ICAEW’s latest Business Confidence Monitor (BCM).

However, despite this, the industry remained resilient after the “political shock” of the referendum, said ICAEW director of business Stephen Ibbotson.

He said the confidence barometer’s slump into the negative had indicated a continuation of an already negative trend, which had been exacerbated by the EU vote. But that business confidence had started to creep back up as businesses started to take stock.

He said: “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.”

The construction sector, alongside property and transport and storage, saw the largest decline in confidence this quarter, according to ICAEW, while manufacturing – which has already been used to lacklustre growth since 2012 – saw a smaller fall.

The BCM showed confidence has been on a constant decline since Q3 last year when it stood at roughly 22.4. It had reached highs of about 37 in the first half of 2014 after rising steadily from a negative rate in early 2012, when firms’ outlook was rated minus 9.3. Similarly to then, more firms told ICAEW they felt negative about the future in the latest quarter than those who felt positive.

Regionally only the North West and Yorkshire and Humber retained a positive outlook in Q3. All other regions turned negative with London, Scotland, West Midlands, and South West showing the most negative outlook.

Larger companies saw bigger confidence declines than smaller ones, reflecting their exposure internationally, ICAEW said.

The body said GDP growth was projected to be just positive at 0.1% in Q3, after reaching 0.6% in Q2.

Firms’ sales are also expected to pick up, albeit at a more modest pace post Brexit. Domestic sales are expected to increase 3% annually post-Brexit, down from 4.3% before, while export growth is projected to fall from 3.7% to 2.4%.

Meanwhile, companies have been facing rising input prices but flat selling prices, hence profit growth remains below expectations, according to ICAEW.

As a consequence, companies are cutting their investment plans, ICAEW said. It suggested capital investment growth could reduce to less than 1% along with research and development while employment growth and staff development spending would also weaken. Salary growth would fall from 2% in the year ahead prior to the vote to just 1.2% after, the body said.

Ibbotson said: “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 added: “Businesses have reacted however as you would expect them to. Time will help rebuild confidence as they 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.”