Business confidence improving, for now
The latest publication of ACCA (the Association of Chartered Certified Accountants) Global Economics Conditions Survey has shown that confidence among UK businesses is improving but threats are looming.
The end of 2015 saw a marked improvement in business confidence, despite economic growth slowing at the same time. Confidence was helped by increased household spending, driven by low inflation and growth in wages. Real household disposable income rose by 4% in Q3, the fastest rate rise since the first quarter of 2010.
Businesses and consumers have also been buoyed by the reduced chances of a rise in Bank of England interest rates during 2016. The expectation is now that a rate rise will not happen until 2017. This increased certainty gives businesses a more solid platform to plan from.
Despite the improvement in confidence in the last quarter there are clear threats on the horizon both domestically and internationally. The slowdown in the Chinese economy is seen as a major threat to growth. Despite growing at 6.9% in 2015 – far ahead of any western economy – this was the slowest growth in 25 years. Experts are predicting an even tougher year ahead, with growing debt and excess capacity in both housing and factories.
On the home front we’ve seen a fall in the capital expenditure index suggesting that investment growth – a key driver of the UK economy over the past couple of years – could be about to fade. In addition to this businesses are bracing themselves for another round of austerity. 66% of respondents are expecting a further reduction in public expenditure, far outstripping the global average of 42%.
The fall in global oil prices is another threat to UK businesses, especially in Scotland. Tens of thousands of jobs not just in Aberdeen but across the UK depend on the success of the oil industry. The volatility of oil prices are putting these jobs at risk, which could spell serious problems for both the UK and Scottish economies.
The final domestic risk to the UK economy, is the uncertainty over the future membership of the European Union. With a referendum expected before summer 2016, although not confirmed, the uncertainty caused by the very existence of a referendum – regardless of expected outcome, has the potential to deter investors.
Globally nearly half of businesses (46%) reported a decline in earnings, which is particularly concerning when combined with the reported difficulty in access finance. Half of businesses reported that they are either cutting their workforce or putting a freeze on recruitment. Access to finance was a big problem for small businesses in the aftermath of the global finance crisis in 2008, and while not at the level, it is concerning to see businesses once again having issues accessing finance.
Although we’ve seen a rise in confidence in this quarter, there are many worrying indicators and it will be interesting to see what happens to confidence in the first quarter of 2016 if the current trends continue.
To help understand the effects of the changing global economy, we are running a survey which compares the current status quo with 3 months prior. Please fill out the survey here: www.surveymonkey.co.uk/r/TQFT6MN
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