Confidence among UK businesses remains in negative territory according to our latest Business Confidence Monitor (BCM), published today. The BCM Confidence Index now stands at -8.7, compared to -9.8 in Q4 2016.
The good news is that confidence appears to be recovering from the shock of the Brexit vote, with businesses seeking to position themselves within a new post-Brexit economic landscape.
Stronger growth in export and domestic sales expected
Input cost inflation is now rising after two flat years, and is expected to accelerate further. Firms are likely to pass many of these increases on to their customers, which may be part of the reason why they expect domestic sales growth to pick up after a flat trend through 2016.
Export growth is also expected to strengthen, continuing the existing trend and reflecting the weak sterling.
Concern over skills shortages has eased
Problems with skills shortages and staff turnover continue to diminish compared to a year ago; however employment growth is expected to slow in the next 12 months as businesses wait to see what the new post-Brexit landscape will look like.
Profit growth is expected to remain weaker than in 2014-15, meaning that real wage growth is threatened by firms exercising pay restraint.
Investment growth limited by uncertainties and spare capacity
Capital investment has experienced the slowest growth for three years and expectations are slower yet in 2017. This shows that while companies are expected to see growth in their sales over the coming year, they are cautious about translating that into higher capital spending.
The same is true for expenditure on Research and Development, which has seen a 1.9% increase in the past year, but which is expected to rise by only 1.4% over the next 12 months.
The challenge now for UK businesses is to be more optimistic about the future, so that they can make the most of opportunities that arise. Meanwhile, Government must resolve the ‘Hard Brexit vs Soft Brexit’ debate in Parliament as quickly as possible and negotiate a Brexit deal which benefits UK business.