Business confidence at 18-month high

Business confidence is at its highest level for more than 18 months

Business confidence is at its highest level for more than 18 months, but concern is still strong in the boardroom about falling sales, according to the latest research from KPMG.

KPMG’s latest quarterly National Business Confidence Survey shows that more than half (56 per cent) of senior executives questioned claim to have seen signs of recovery in the UK economy, with 47 per cent seeing green shoots in their own sectors.

A total of 19 per cent actively view prospects for UK business over the next 12 months as ‘good’ or ‘very good’ - compared with nine per cent reporting such optimism in the previous quarter.

Interestingly the number of respondents that saw prospects for the economy as ‘bad’ or ‘very bad’ dropped to 24 per cent compared with 54 per cent in the last quarter.

However, despite the apparent optimism, KPMG claimed there was still a ‘cold wind’ blowing through the heart of UK businesses, with 21 per cent expressing grave concerns about a fall in demand for their products or services. Concerns over falling sales have now overtaken credit and funding issues as the most pressing concern.

Malcolm Edge, head of markets for KPMG in the UK, said: “While at first glance these statistics do look encouraging, we must not forget that opinion is still heavily divided as to whether or not the economy is out of intensive care.

“It is particularly interesting that in spite of certain economic indicators pointing towards modest growth in the third and fourth quarters of this year, the majority of senior executives do not expect the economy to come out of recession for at least another seven to 12 months; perhaps because there is, as yet, no end in sight to falling consumer demand.”

“However, for those firms who are concerned about their sales pipeline, there is nevertheless a silver lining to be found,” he claimed. “The continued weakness of the pound against the dollar and the euro presents a massive opportunity for British firms to look beyond these shores and tap into overseas markets, so it is extremely heartening to see that expansion into new markets was the most commonly cited tactic to address business concerns.

"At heart, UK businesses are an entrepreneurial bunch, so taking advantage of such opportunities for growth will be an important catalyst in sustaining confidence levels across the economy as a whole.”

In addition 21 per cent of respondents predicted a ‘double-dip’ scenario, but the vast majority believed the recovery will be long and slow, said Edge.

“This is where we bob along the bottom of the cycle for three to five years before substantial growth is seen again.

“The old adage that twice as many companies fail on their way out of recession than do going into it certainly rings true,” warned Edge. “Over the past 12 months, companies have worked tirelessly to get to grips with their working capital, with many firms destocking in response to declining demand.

“However, the concern is that when trade does start to pick-up again, businesses will simply not have the cash available to finance any new growth plans. Although the majority of banks are claiming to be open for business, the fact remains that at present, lending will only happen in specific circumstances and under very strict guidelines.

Edge concluded: “The temptation to over-trade or scale up too quickly can be all-consuming after a lengthy period of inactivity, so there is a certain irony in the fact that this desire to ‘get things back to normal’ can often be the straw that breaks the camel’s back.

"Companies therefore need to resist the urge to go in with all guns blazing, and instead, keep up all those good habits that they have relied upon to see them through the downturn. For instance, the use of rigorous forecasting will not only assist an organisation in managing its cash flow during the final throes of the downturn and demonstrate good practice to funders, but it will also provide a sound base on which to monitor demands on working capital.”