An assessment of the UK economy has revealed business confidence has fallen again as companies become more cautious about their prospects in 2015.
With less than 100 days until the General Election in the UK, the latest ICAEW/Grant Thornton UK Business Confidence Monitor (BCM) indicates a stabilising of the trading environment and, after three strong quarters, a slowdown in business investment.
The BCM Confidence Index stands at +16.8, down from +28.6 in the previous quarter, reflective of a more challenging economic environment.
Among its key findings the BCM reports that skills shortages and staff turnover continue to be an issue, that capital investment figures have slowed and that salary growth remains muted. It also concludes economic growth is being driven by domestic demand fuelled by strong employment figures.
Michael Crowe, a director at Grant Thornton in the Isle of Man, said: ‘The state of the UK economy is important to the Isle of Man business sector, and while it is encouraging to see economic growth remains, it is of some concern that confidence among businesses has fallen for another quarter.
‘That said, it must be noted that confidence remains higher than it was prior to the UK recession and it is perhaps not surprising to see a cautious outlook ahead of an unpredictable General Election.
‘This detailed assessment provides a useful insight into attitudes towards the UK economy and will help Island businesses assess the markets and opportunities available.’
The BCM for the first quarter of 2015 says the approaching General Election coupled with an uncertain economic future in the Eurozone and elsewhere means fewer businesses are as confident about their prospects as they were last quarter. Banking and construction have seen dramatic falls, although the IT and communications sector is bucking the trend, with businesses more confident about their prospects over the next 12 months, compared to a year ago.
Due to the dramatic fall in UK inflation seen in recent months, salary growth is now comfortably above inflation, so employees are starting to see a prolonged real-terms growth for the first time in several years. However, the BCM reports wages themselves are not rising and are still well below pre-recession growth levels.
As UK unemployment continues to fall, and the number of businesses operating with spare capacity continues to reduce, staff turnover and skills shortages become a greater issue for more firms. This is particularly acute for the construction sector, the BCM concludes, with 44% of businesses struggling to find workers with the right non-management skills, compared with 33% the previous quarter.
ICAEW Chief Executive Michael Izza said: ‘Although not as confident, businesses remain optimistic about the UK’s economic outlook. Whilst confidence has fallen back, perhaps not surprising in a General Election year, it remains high and above pre-recession levels.
‘Much of this optimism is being driven by the growth in domestic demand. Consumers are reacting to the unusual period of low interest rates, inflation, oil and commodity prices by spending. Wages are now outstripping inflation and employees are feeling empowered to seek new pastures in order to maximise their earnings. This leads to headaches for business leaders as to the best way to reward and retain their staff.
‘Yet this shouldn't detract from the need for the UK to rebalance its economy, grow export markets and reducing the dependence on service industries, particularly financial services. While it is better to have growth based on domestic demand than no growth at all, with a General Election campaign in sight it is imperative that business receives long-term assurances about the UK’s economic direction which is not deflected by short-term campaign promises."
Photo - Michael Crowe.