UK businesses have lowered expectations for 2011 as business confidence weakens according to the latest UK Business Confidence Monitor (BCM). This suggests that economic growth next year will be slower than forecast with companies reluctant to invest and back the recovery.
Key findings for Q4 2010 include:-
• The Business Confidence Index (BCM) has fallen since Q3 2010 by nearly 10 points. It fell from +21.5 to +11.9 with the pace of decline accelerating
• The percentage of businesses less confident about the coming 12 months has risen from 19% in Q3 to 24% this quarter
• Expected turnover growth over the next year has declined from 4.9% last quarter to 3.5% as firms become more realistic about economic conditions
• Confidence in the retail and wholesale, manufacturing and engineering, and property sectors has fallen significantly
Financial indicators improve though forecasts weaken
There is continued improvement in companies financial results with business turnover, profit and exports all increasing this quarter. Despite this, expectations for future growth have been revised as companies become more realistic about 2011. Expected turnover growth over the next 12 months declined from 4.9% in Q3 2010 to 3.5% in Q4. Forecast gross profit growth for the year ahead has also fallen from 4.4% to 3.3%.
Confidence falls in most sectors
The BCM Confidence Index fell sharply in most industry sectors this quarter. Confidence in the Manufacturing and Engineering sector, which saw growth earlier in the year attributed to the inventory cycle, fell from +34.6 last quarter to +16.5 this quarter. The Property sector CI fell from +25.0 in Q3 to +8.3 as the housing market weakens. Retail and Wholesale is the least confidence sector with a CI of +1.7 compared to +23.2 the same time last year. With the increase in VAT in January many retailers will be hoping for a good Christmas.
Customer demand a bigger problem
Combined with lower confidence, 44% of businesses report customer demand is a greater challenge than 12 months ago, up from 37% in Q3 2010. Sectors where customer demand gives particular cause for concern this quarter are Manufacturing & Engineering and Property and Construction, as well as Banking, Finance & Insurance. The challenge of customer demand reflects the softening in the economy.
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