According to research conducted by the Institute of Chartered Accountants in England and Wales (ICAEW) and Grant Thornton, small business confidence has improved for the first time in over a year.
However, the UK Business Confidence Monitor (BCM) is showing that business confidence is still well below the all-time high seen a year ago, and the latest results suggests that consistent skills shortages and a drop in investment expectations are fostering increased uncertainties in the medium term.
Key findings from the study:
- The BCM Confidence Index stands at +22.4, up from +16.2 last quarter – showing that outlook was boosted by the decisive election result. This has arrested the consecutive falls in business confidence, but is still below the level seen a year ago.
- There are still no signs from businesses to raise employee salaries, although the ‘lowflationary’ environment is boosting consumer spending power.
- Skills shortages are becoming even more of an issue, with a lack of people with non-management skills more of an issue than at any time since before the financial crisis.
Robert Hannah, chief operating officer at Grant Thornton UK, said: “The rebound in confidence is undoubtedly pegged to the rather surprising outcome of the general election and the clarity this offered, at least in the short term, on the UK’s political outlook.”
Nevertheless, he tempered the positivity by pointing out that some long-term issues need to be resolved.
“There are still a number of unknowns facing UK businesses which must be navigated over the mid to longer term, particularly as regards exports, talent and investment.”
This tallied with a separate report from a recent CBI SME Trends report, which revealed that although Growth among smaller and medium-sized manufacturers remained positive in the three months to July, exports dragged down overall performance.
There are still no signs from businesses to raise employee salaries, although the ‘lowflationary’ environment is boosting consumer spending power.
However, spare capacity however has reached its lowest level since early 2008, which should provide a small boost to productivity – and signal that an interest rate rise could be drawing nearer.
“The number of firms operating at capacity is increasing, which should improve productivity growth, but the production industries still have a large amount of slack to tighten. Infrastructure investments such as the rail upgrades have been delayed, which combined with a severe drought in suitably skilled workers means that it is going to be a long, long time before productivity growth is turbo-charged. We need rhetoric for major projects to turn into diggers on the ground,” said Stephen Ibbotson, ICAEW Director of Business.
Ibbotson went on to point out how businesses are approaching a “crunch point” in terms of a looming rates rise. He stresses that it is a perilous time for new companies who have never experiences higher interest rates.
“A rate rise is expected at the turn of the year, and the living wage, apprentice levy and dividend tax changes announced in the Budget far outweigh the benefits from a corporation tax cut. We want capital investment to improve but the Annual Investment Allowance has been set at a lower level than companies are used too. The government needs to keep a watchful eye on how these measures affect businesses in the medium term.”