Commenting on the results, Robin Fieth, the ICAEW’s Executive Director of Operations and Finance, said:
“The survey paints a stark picture of the challenging business environment that has emerged in the UK over the past year, with the economy facing its most difficult period since the early 1990s. This is now compounded by high and uncertain oil and commodity prices creating inflationary pressures and fall out from the UK housing market downturn which has continued to gather pace. At the same time we are seeing a new realism among businesses about the need to weather the current economic conditions with projected staff and capital investment both significantly down on this time last year.”
He added: “As an increased number of businesses express concern over late payment, effective cash flow management is now more essential than ever for those sectors with rising input costs, such as Manufacturing and Transport & Storage.”
Confidence in the Construction and Property sectors have fallen sharply as the housing downturn has gathered pace. In addition, sectors reliant on the previously buoyant UK consumer are also feeling under pressure. With increased inflation causing a squeeze on real disposable incomes, and the housing market slowdown impacting on consumer confidence – now at its lowest since the 1970s – Retail & Wholesale and Hotels & Catering also register large falls in confidence.
Confidence in the Business Services sector fell sharply this quarter. Business Services remained optimistic relative to other sectors when the effects of the credit crunch were first felt in the UK economy. The reality of the economic slowdown is now beginning to feed through, hitting areas such as recruitment, marketing and consultancy. Confidence in the Banking, Finance & Insurance sector also fell further this quarter. Business and Financial Services have tended to drive UK economic growth in recent years. Low confidence in both and low actual quarter-on-quarter growth – latest GDP figures
(Q2 2008) show quarter-on-quarter growth at just 0.1 – is a worrying sign for UK economic performance in the months ahead.
Confidence is at its weakest in all but 2 of the 11 UK regions since the survey began with businesses in every region pessimistic about their prospects. The West Midlands is least confident with a Confidence Index of -38.2. It experienced the sharpest fall in the third quarter – caused by weakening prospects for the manufacturing sector with input price inflation at its highest level since the 1980s. Confidence in London remains low at -29.7 as the credit crunch hit the Business Services sector and fragility in Banking, Finance and Insurance and Property sectors continued.
There is however light on the horizon with senior business professionals expecting prices to rise by 1.8 per cent over the next 12 months – in line with a picture of inflationary pressures gradually dissipating as the global economic slowdown lowers demand and takes pressure out of commodity prices. Salaries are expected to rise by 2.5 per cent over the next year – lower than in all previous quarters – suggesting wage-price inflationary spirals are less likely.
Robin Fieth added: “We expect the slowdown to be at its worst towards the end of 2008 and into early 2009. We also expect inflation to start falling back from early 2009, allowing the Bank of England room to cut interest rates throughout 2009. Nevertheless, overall the performance of UK plc through 2009 is likely to be the weakest growth since 1992 – when the economy grew by just 0.3 per cent. However, towards the end of 2009, providing wage inflation stays low, economic activity looks likely to pick up.”
