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uk business confidence

The Guardian has reported forecasts for weaker economic performance for the UK by two major groups. Reports from IHS Markit and EY Item Club show lowering business confidence and declining GDP growth.

The IHS Markit report shows UK confidence to be at its lowest since 2011, with +35% expecting an increase in activity over the next 12 months. This is down from +52% in February and suggests that the realities of Brexit are increasingly worrying businesses.

There is some variance within the report with the service sector scoring a lower +32% compared with the more positive +49% in the manufacturing sector.

But overall it does tally with findings from our own ‘1 year on from Brexit’ survey, which suggested that businesses are concerned that Brexit will have a negative impact.

In response to a question in which businesses were asked to evaluate on a scale out of 10 whether Brexit will have a positive impact on their ability to do trade, businesses responded with low a figure of 3.6; when asked if they thought that Brexit would result in increased opportunities in international trade, 59.55% said no with only 19% saying yes.

On the domestic front, the consumer spending squeeze and muted earnings growth are also having a negative impact, as the EY Item Club reduced its GDP growth forecast for 2017 from 1.8% to 1.5%. Paul Spencer, chief economist for the group, said: “The inflationary squeeze on consumers has been painful and shows little sign of easing any time soon”.

The impact of Sterling’s fall remains uncertain. While it is definitely opening up some doors for the country’s exporters – something that is fuelling confidence in manufacturing – it is hitting consumer spending and affecting businesses’ supply chain costs. Inflation is expected to reach up to 3.3% this autumn, outpacing growth in average earnings.

Chris Williamson, chief economist at IHS Markit, said:

“The drop in confidence pushed the level of UK optimism below that seen in the eurozone for the first time in seven years, and contrasts with multi-year high levels of optimism in the United States and Japan. As such, the survey results suggest the UK is at risk of falling behind in an otherwise solid-looking global economic outlook.” 

Source: ‘UK business confidence at lowest point for six years, say forecasters’ – the Guardian, 18/07/17