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Business confidence in the banking, finance and insurance sector drops to an all-time low, says ICAEW

As the economic slowdown continues, business confidence in the banking, finance and insurance sector declines to a record low of -37.6, down from -34.4 last quarter, according to the latest Business Confidence Monitor (BCM) from the Institute of Chartered Accountants in England and Wales (ICAEW). The overall BCM Confidence Index declined from -19.7 in the previous quarter to -25.7.

Commenting on the results, Robin Fieth, the ICAEW’s Executive Director of Operations and Finance, said:

“The survey paints a stark picture of the challenging business environment that has emerged in the UK over the past year, with the economy facing its most difficult period since the early 1990s.  This is now compounded by high and uncertain oil and commodity prices creating inflationary pressures and fall out from the UK housing market downturn which has continued to gather pace. At the same time we are seeing a new realism among businesses about the need to weather the current economic conditions with projected staff and capital investment both significantly down on this time last year.”

He added: “As an increased number of businesses express concern over late payment, effective cash flow management is now more essential than ever for those sectors with rising input costs, such as Manufacturing and Transport & Storage."

Confidence in the Banking, Finance & Insurance sector fell further this quarter. Business and Financial Services have tended to drive UK economic growth in recent years. Low confidence in both and low actual quarter-on-quarter growth – latest GDP figures (Q2 2008) show quarter-on-quarter growth at just 0.1 – is a worrying sign for UK economic performance in the months ahead.

Confidence in the Construction and Property sectors have also fallen sharply as the housing downturn has gathered pace. In addition, sectors reliant on the previously buoyant UK consumer are also feeling under pressure. With increased inflation causing a squeeze on real disposable incomes, and the housing market slowdown impacting on consumer confidence – now at its lowest since the 1970s – Retail & Wholesale and Hotels & Catering also register large falls in confidence.

Confidence in the Business Services sector fell sharply this quarter. Business Services remained optimistic relative to other sectors when the effects of the credit crunch were first felt in the UK economy. The reality of the economic slowdown is now beginning to feed through, hitting areas such as recruitment, marketing and consultancy.

Confidence is at its weakest in all but 2 of the 11 UK regions since the survey began with businesses in every region pessimistic about their prospects. The West Midlands is least confident with a Confidence Index of -38.2. It experienced the sharpest fall in the third quarter – caused by weakening prospects for the manufacturing sector with input price inflation at its highest level since the 1980s. Confidence in London remains low at -29.7 as the credit crunch hit the Business Services sector and fragility in Banking, Finance and Insurance and Property sectors continued.

There is however light on the horizon with senior business professionals expecting prices to rise by 1.8 per cent over the next 12 months – in line with a picture of inflationary pressures gradually dissipating as the global economic slowdown lowers demand and takes pressure out of commodity prices. Salaries are expected to rise by 2.5 per cent over the next year – lower than in all previous quarters – suggesting wage-price inflationary spirals are less likely.

Robin Fieth added:  “We expect the slowdown to be at its worst towards the end of 2008 and into early 2009. We also expect inflation to start falling back from early 2009, allowing the Bank of England room to cut interest rates throughout 2009.  Nevertheless, overall the performance of UK plc through 2009 is likely to be the weakest growth since 1992 – when the economy grew by just 0.3 per cent. However, towards the end of 2009, providing wage inflation stays low, economic activity looks likely to pick up.”

To access the survey in full go to www.icaew.com/bcm.

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Media enquiries:
Kirstina Reitan, ICAEW press office
Tel: 0208 896 3946
Mob: 07894 573 721
Email kirstina.reitan@icaew.com

Heather Coath, ICAEW press office
Tel: 01332 865666
Mob: 07715 496493
Email: heather.coath@icaew.com
 
Notes to editors:
1. As a world leading professional accountancy body, The Institute of Chartered Accountants in England and Wales (ICAEW) provides leadership and practical support to over 130,000 members in more than 160 countries, working with Government, regulators and industry in order to ensure the highest standards are maintained.
 Our members provide financial knowledge and guidance based on the highest technical and ethical standards.  They are trained to challenge people and organisations to think and act differently, to provide clarity and rigour, and so help create and sustain prosperity.  The ICAEW ensures these skills are constantly developed, recognised and valued.
 Because of us, people can do business with confidence.

2. The ICAEW is a founding member of the Global Accounting Alliance with over 700,000 members worldwide.

3. 1025 Chartered Accountants responded to a telephone survey during the period 24 April to 24 July 2008.    Businesses were categorised in terms of size (no. of employees), region and industry sector. The regions are classified as follows: London, South East  (Oxfordshire, Berkshire, Hampshire, Surrey, Sussex, Kent), East (Norfolk, Suffolk, Cambridgeshire, Essex, Hertfordshire, Bedfordshire, Buckinghamshire), South West (Cornwall, Devon, Somerset, Dorset, Wiltshire, Gloucestershire), East Midlands (Northamptonshire, Leicestershire, Lincolnshire, Nottinghamshire, Derbyshire), West Midlands (Birmingham, Hereford, Worcester, Shropshire, Staffordshire, Warwickshire), North West (Cheshire, Greater Manchester, Lancashire, Merseyside) Northern (Cumbria, Durham, Northumberland, Cleveland, Tyne & Wear), Yorkshire & Humber, Wales and Scotland.

4. The Business Confidence Monitor survey has been running since 2003

5. Business Confidence Index methodology – The Business Confidence Index is calculated from the responses to the following:

“Overall, how would you describe your confidence in the economic prospects facing your business over the next 12 months, compared to the previous 12 months?” 

A score was applied to each response as shown below, and an average score calculated:

Variable Score
Much more confident +100
Slightly more confident +50
As confident 0
Slightly less confident -50
Much less confident -100

Using this method, a Confidence Index of +100 would indicate that all survey respondents were much more confident about future prospects, while -100 would indicate that all survey respondents were much less confident about future prospects.

6. cebr is an independent economics consultancy. Since 1992, cebr has been at the forefront of business and public interest research. It provides analysis, forecasts and strategic advice to major UK and multinational companies, financial institutions, government departments and agencies, trade bodies and the European Commission.
More at www.cebr.com.