Despite being more confident about the economic outlook when compared with data from Q1 2017, businesses are still reluctant to make long-term commitments in a number of areas, according to new research from accountancy trade body, ICAEW.
The BCM Confidence Index reveals increased from -8.7 in Q1 to 6.7 in Q2 this year, while GDP growth for the second quarter is forecast at +0.5 per cent.Companies forecast increased profit growth, which reflects improved domestic sales expectations and their ability to raise prices. However, research and development growth will remain modest, with firms projecting a rise in their capital expenditure growth instead.
In the run up to the General Election on June 8th, all party manifestos should spell out how they are going to address the problem of business investment head-on, says ICAEW’s director of business, Stephen Ibbotson.
“It’s encouraging to see that confidence is starting to rise after a sustained period of decline. Yet against this improved sentiment, businesses are not investing in staff and wages and may well be waiting to see what happens in the political arena, particularly in relation to how EU negotiations play out,” Ibbotson says.
The gradual increase in confidence has been most prominent within the utility and manufacturing, ICT, finance and business sectors, while confidence for the retail and wholesale sector still sits in negative territory. Firms are expected to pass a portion of rising input costs on to consumers, which may explain why the largest confidence rises in those companies that sit further away from direct contact with consumers. With household incomes likely to be squeezed further in 2017, this trend is expected to continue for the rest of the year.
While businesses are expecting a rise in sales growth and revenue, they are seeking to offset input cost rises by holding wage growth to a rate below inflation. With the problem of skills shortages in check, probably due to the slowing of job creation, businesses are projecting to spend less on staff development.
Rising input costs will see inflation exceed wage growth which, when coupled with businesses passing on cost rises to customers in order to rebalance the books, will hit consumer spending power, he adds. “This will likely force households to tighten their purse strings further in 2017, which could challenge domestic growth driven by spending. In order for the UK to become the best place to do business, all parties should spell out how they plan to encourage businesses to invest in long-term growth.”