Survey suggests recession is over

The latest ICAEW UK Business Confidence Monitor shows that confidence among business professionals is positive for the first time in two years.



The rise in confidence from -28.2 to +4.8 is the highest since Q3, 2007 and the ICAEW predicts GDP will rise 0.5 per cent this quarter based on the survey’s outlook.



According to the ICAEW (Institute of Chartered Accountants in England and Wales), this quarter’s change is the largest quarterly improvement seen since BCM began. This cautious optimism is underpinned by expected rises over the next 12 months in 13 out of the 14 financial performance indicators detailed within the BCM. This is in contrast to the picture earlier in the year when the majority were expected to contract.



‘This quarter’s BCM suggests that the UK recession is at an end,’ said Michael Izza, chief executive of the ICAEW. ‘While there is no doubt that the UK economy is on its way to recovery, we shouldn’t underestimate the challenges ahead for businesses. Businesses have taken the right actions to mitigate the impact of the downturn and are playing their part in an improving economy. Policies such as quantitative easing, the fall in interest rates and the VAT reduction have all helped improve business confidence. However, the recovery is very fragile and I would urge policy makers not to take any actions that could derail it.’



When asked, 41 per cent of senior business professionals were more confident about economic prospects facing their business in the next year. However, only six per cent were much more confident, indicating that caution remains about the strength and timing of the recovery.



The monitor revealed that businesses have looked to cut costs where possible, including a reduction in the number of employees (-2.9 per cent). Although this is the biggest ever drop, firms do not expect to make further redundancies in the next year. Staff development and capital investment have also been cut and stock levels continue to be closely managed. More than a quarter in the manufacturing, construction and transport sectors have stocks of raw materials and components below normal levels.



IT is said to be the most confident sector (+18.5 per cent), followed by banking, finance and insurance (+15.9 per cent) and property (+11.7), compared to the UK average of +4.8. The least confident sector is health and education (-12.2 per cent), which faces cuts in public sector spending.



Across the country, business confidence rose across all regions for the second consecutive quarter. Wales is the most confident with an Index of +16.9, followed by Scotland at +15.9. Northern England is the most positive of the English regions having seen a rise of more than 50 points. London and South East are the most cautious (-1.1 and -0.6 respectively), reflecting a net balance of businesses that were wary about economic prospects.



‘Although positive growth in the autumn seems more likely, there are concerns about the strength of the recovery,’ said Izza. ‘Salaries are expected to remain squeezed and with no planned recruitment there is still an air of nervousness among UK businesses. Confidence is up, but those in manufacturing and engineering, as well as large businesses, remain cynical about their prospects for the future. Both are crucial to the UK economy and the signs are that the next 12 months are very much about building for the recovery.’



The Business Confidence Index is calculated from responses to a question that asks: Overall, how would you describe your confidence in the economic prospects facing your business over the next 12 months, compared to the previous 12 months?



Scores are applied to five responses – much more confident, slightly more confident, as confident, slightly less confident and much less confident – and an average score calculated.