The Institute of Chartered Accountants in England & Wales has recently published its Business Confidence Index for the second quarter of 2019. And pretty grim reading it is.
The ICAEW report shows that business confidence is negative at -16.6%, having been +7% just a year ago. Sales growth is sluggish, with export growth stalled and no significant increase in sales volumes anticipated in the next 12 months. Sales prices are rising more slowly than both input prices and wage growth, leading to declining profitability. Late payment problems are reported to be increasing.
On the wider economic position, headline GDP is currently showing growth of around 0.5% for the last quarter, an improvement. However, that figure is distorted by companies building up stocks in anticipation of Brexit and the possibility of a failure to agree on an exit deal between the UK and EU creating supply problems, which has given a short term boost to the manufacturing sector. The figure is therefore probably temporarily inflated and real growth is stagnant. Stock-building also leads to companies’ cash flow plans going awry.
Business recovery specialists, at the tri group, said: “Coming on top of other reports claiming that almost 500,000 businesses are in significant financial distress, and the number of company insolvencies increasing by 6.3% in the first quarter of the year, this latest report adds to a sense of gloom. We’re seeing cash flow being stretched because of too much being tied up in working capital, and exacerbated by late payment and struggles to collect debts from customers.”
The ICAEW report also shows that capital investment is not matching even the sluggish sales growth, which is unsurprising given weak confidence, sales and profitability, as well as spare capacity. Future investment plans are, at best, modest.
“Much of the decline in confidence results from the continuing uncertainty surrounding Brexit, and the extension of Article 50 to, potentially, October, just prolongs the agony”
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“Our advice to company directors whose businesses may be starting to show signs of strain is to take action as soon as the problems start to appear, and not to leave it until it’s too late.”
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