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UK business confidence slumps to seven-year low

Confidence among UK businesses tumbled to its lowest level in over seven years last month, according to a new report, as yet more political uncertainty cast gloom over the economy.

Businesses in Britain’s manufacturing sector were the most pessimistic. Manufacturers are now facing “recessionary conditions,” the latest optimism index from accountants BDO said today.

The optimism index – a gauge of how companies are feeling about the economy – fell 0.67 points to 95.59 in October, just above the 95 level which indicates zero growth.

The fall was driven by a steep fall of 3.38 points in the manufacturing sector. Output in the sector also suffered, falling for a thirteenth consecutive month to hit 87.10 points. BDO said the score was “well into recessional territory”.

British growth has slowed considerably in 2019, but looks set to avoid a recession despite the economy contracting in the second quarter.

Manufacturing has borne the brunt of the slowdown, with weak global demand and ongoing Brexit uncertainty taking its toll on business investment, orders and exports.

Despite Prime Minister Boris Johnson striking a Brexit deal with the European Union in October, the upcoming General Election means uncertainty is set to linger over the economy for the time being.

BDO partner Peter Hemington said: “The last time we saw business confidence at such a low level was when the country was staggering out of the doldrums caused by the global financial crisis.

“With an unpredictable general election looming, continued political volatility in the UK remains a key driver of falling optimism.”

Dwindling confidence in the economy was accompanied by a fall in business output in October, BDO said.

Worryingly, not only the manufacturing sector but also the UK’s giant services sector registered a fall in output on BDO’s gauge.

Hemington said things did not look likely to pick up soon. “Given British businesses are telling us that new hires and investment are hard to justify at the moment,” he said, “growth will continue to remain elusive until there is some kind of resolution of the Brexit conundrum.”

By Harry Robertson

Source: City AM

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UK business confidence remains negative

The ICAEW Business Confidence Monitor (BCM) suggests that GDP growth could drop from 0.5% in Q1 to 0.2% in Q2, due to the impact of stock building, which “probably temporarily boosted GDP”.

“Businesses I speak to say that there is no sense that things will change much in the next few months and this is reflected in their confidence. Many have stockpiled ahead of the expected March exit from the European Union, but this did not happen. Stockpiling is expensive for businesses, but it did boost GDP growth,” said Michael Izza, ICAEW chief executive.

“However, my fear is that this will have an impact on growth and GDP figures in the rest of the year, so we should not be surprised to see even lower growth than normal while companies use up the excess stock they now have,” added Izza.

Stock building of raw materials and components is most widespread among businesses in the manufacturing sector.

Business confidence remains negative (-16.6) but has not fallen sharply for the first time in year. Transport and storage (-26.7) and property (-26.1) are the least confident sectors, according to the BCM.

Sales growth has been “slow and steady” and is predicted to remain so for the year. Employment is also growing slowly, said ICAEW.

By Raymond Doherty

Source: Economia

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Brexit impasse sends UK business confidence plummeting, new surveys show

The political crisis surrounding Brexit has sapped confidence from some of the UK’s biggest and smallest companies alike, as crunch talks between Labour and the Conservatives reach a “delicate stage” this week.

More than eight in 10 finance chiefs at large UK companies now say the long-term business environment will be worse as a result of Brexit, according to a first-quarter survey by Deloitte – up from 68 per cent a year earlier, and 60 per cent two years ago.

Meanwhile, more than half of Britain’s small and medium-sized businesses – 57 per cent – predict the economy will plunge into recession this year, a survey by Bibby Financial Services revealed this morning.

Yesterday David Lidington, in effect the Prime Minister’s deputy, admitted talks with Labour aimed at reaching a Brexit compromise were at a “delicate stage” but would continue into this week.

The extent of the Tory party’s divisions was laid bare by former leader Iain Duncan Smith, however, who called on Theresa May to resign next month and said the negotiations were potentially a “recipe for disaster”.

Duncan Smith said he had “real concerns with some of my colleagues going out lauding Jeremy Corbyn”. A poll over the weekend found that the Conservatives could lose 59 seats if a General Election was called.

Uncertainty surrounding Brexit heightened last week when the EU agreed to extend the UK’s departure until 31 October. Business confidence has also been hampered by economic headwinds stemming from trade tensions and slower global growth.

The Deloitte survey, which spoke to 89 UK chief financial officers (CFOs), many from FTSE 100 and FTSE 250 companies, found that half now expect revenues to fall in the next 12 months, compared to only 18 per cent a year before.

Pessimism has seen CFOs slash investment plans, with 48 per cent saying they plan to reduce their companies’ capital expenditure.

Small and medium-sized businesses have had their least confident start to a new year since 2014, according to Bibby Financial Services, as firms from across the spectrum were weighed down by the failure to find a Brexit solution.

A third of smaller UK businesses said in the first quarter survey that they are holding back investment due to economic uncertainty, a significant increase from a quarter at the end of 2018.

Edward Winterton, UK chief executive of Bibby Financial Services, said: “If SMEs are the warning lights of our economy, this quarter signals to us that they see trouble ahead.”

“The parliamentary process has unfairly dominated our national conversation and it is imperative we get a resolution soon,” he said. “Political uncertainty is acting as a brake on the economy.”

As Brexit uncertainty hangs over the economy, chief financial officers are looking to hoard cash. Over 50 per cent said increasing cash flow is a “strong priority”, a higher score since than at any time since 2010.

David Sproul, senior partner and chief executive of Deloitte North West Europe, said: “Large businesses are clearly looking to protect themselves against risk by raising cash levels and bullet-proofing balance sheets. They appear to be battening down hatches for tougher times ahead.”

Around half of CFOs also expect to reduce hiring due to Brexit, the highest level in more than two years.

Meanwhile, a survey from recruitment consultancy Morgan McKinley today revealed that the number of jobs openings in financial services in London in the first quarter fell nine per cent compared to the same period a year earlier.

The number of professionals in London seeking jobs in the sector decreased 15 per cent over the same period.

Morgan McKinley managing director Hakan Enver said: “The inability of the government to reach consensus on a Brexit deal has crushed confidence among City employers.”

“With the Brexit deadline having been extended till the 31st October, the stress on businesses is showing no sign of letting up,” he said. “Jobs continue to flow out of London with Dublin being by far the biggest beneficiary, followed by Luxembourg, Paris, Frankfurt, and Amsterdam.”

By Harry Robertson and Alexandra Rogers

Source: City AM