Lack of proactive planning by business as they prepare for Brexit

Snap general election, hung parliament and and Brexit negotiations have thrown business planning into trouble.

Business confidence has fallen back into negative territory, reversing the gains made in Q2 2017, according to the latest ICAEW Business Confidence Monitor (BCM). A snap general election, the hung parliament and the hesitant progress of negotiations with the EU has meant British businesses are now adopting a more cautious, wait-and-see approach.

Key findings for Q3 2017:

· The Business Confidence Index is now back in negative territory, falling from 6.7 in Q2 to -8 in Q3, similar levels to the first quarter of 2017
· GDP growth for the third quarter is forecast at 0.2 per cent, after 0.3 per cent in the second quarter
· Input prices continue to rise at 2.5 per cent year-on year
· Household incomes will continue to be squeezed as businesses seek to control overall cost rises by holding wage growth to a rate below inflation
· The depreciation in the value of Sterling hasn’t led to faster growth in exports
· Businesses are not investing at the level needed to generate faster UK economic growth. Expectations are for investment growth to remain well below the rates of 2014 & 2015
· A shortage of non-management skills is a growing concern by a record-equalling number of businesses whilst investment in staff training remains weak

Mathew Rideout, ICAEW director of business says, ‘The fall back into negative territory is not unexpected. Since the announcement of the general election, a vacuum has been left with Government’s attention swallowed by a hung parliament and the start of EU negotiations. The industrial strategy has been lost in the void, coupled with no clear signal towards post-Brexit policy. As a result, businesses cannot see through this haze of uncertainty and are struggling to look further than the end of the next quarter in terms of their decision making.

‘If they haven’t already, businesses need to look beyond the next few months to a future where innovation and investment now will create a longer term return. They need to be investing in talent, new products and services as well as exploring new markets to help ensure they are positioned to take advantage of the opportunities that will be there once the UK leaves the European Union. Government also needs to articulate what business should expect in terms of transitional arrangements as they need to be planning now and cannot wait until early 2019 to find out.’

Investment growth expected to fall back across almost all sectors

Capital investment continues to grow slowly and expectations for investment growth remain well below the rates of 2014 and 2015. Job creation is positive, but shows no signing of picking up, reflecting low confidence overall. It is a similar picture for staff development and R&D budgets which are growing at a much slower pace than revenues. Sluggish investment is not surprising, given that over 50 per cent of businesses are working below capacity.

Domestic sales remain steady, but export expectations fall

Domestic sales growth has been steady through 2016 and 2017 to date. Overall, export growth is being maintained, but weaker sterling has failed to deliver a significant improvement and expectations are falling as sterling edges up. With selling prices rising by just over one per cent year on year, and input costs rising 2.5 per cent year on year, the resulting gap between input and selling price is large. Businesses hope to control overall costs by holding wage growth steady, despite rises to inflation.

Skills shortage

A quarter (25 per cent) of businesses report that a shortage of non-management skills is a greater challenge to their business than a year ago. This may reflect a fall in net immigration into the UK since the Brexit vote and uncertainty over immigration policy.