Business confidence has moved into positive territory for the first time since the EU referendum, but businesses are still reluctant to make long-term commitments in a number of areas.
That is the key finding from our latest Business Confidence Monitor (BCM). The BCM Confidence Index has risen from -8.7 in Q1 2017 to 6.7 in Q2.
Whatever the outcome of the General Election on 8 June, the incoming Government will need to have a plan in place for how it will encourage business investment. Another priority should be to develop policies that provide infrastructure and skills enhancements that underpin an effective industrial strategy.
Businesses investment continues to be weak
It is encouraging to see that confidence is starting to improve after a sustained period of decline. The initial shock following the Brexit vote seems to have passed and companies appear to be getting on with their business plans.
However, uncertainty around the Brexit negotiations means businesses continue to be cautious and are minimising expenditure. In order for the UK to become the best place to do business, companies need to be given the confidence to be able to invest in long-term growth.
Input prices continue to rise
Input prices are rising at their fastest rate since 2012, but companies are still predicting sales and profit growth. This will be achieved by passing on part of the cost increase to customers whilst controlling labour costs and restricting investment. Consequently, many households will be forced to tighten their purse strings further in 2017, which could challenge domestic growth driven by spending.
Export growth predicted to strengthen
On a more positive note, export growth is predicted to strengthen, particularly in the Manufacturing and IT & Communications sectors. This comes after a period in which exports have shown little response to the fall in sterling post-referendum.
Also on the positive side, the UK’s unemployment rate has continued to decline to a record low, and figures from the OECD suggest that foreign direct investment into the UK rose sharply in 2016.