Q1 2012 ICAEW / Grant Thornton Business Confidence Monitor results 6 February 2012 Contact: Caroline Florence

Outline Key findings Confidence index top lines Financial performance indicators Growth indicators Inflation & labour market indicators Regional & sector stories Source: ICAEW / Grant Thornton Q4 2011 Business Confidence Monitor

Key findings Capital investment growth expectations have continued on a downward trend this quarter, suggesting that businesses are cautious about future economic prospects. The share of businesses reporting stock levels to be above normal has risen again this quarter – suggesting that we could see destocking in 2012. Expected salary growth remains extremely weak and private sector job creation remains weak as businesses plan for uncertainty. Turnover and profit growth expectations remain well below levels seen prior to the financial crisis although did not deteriorate significantly this quarter.

Outline Confidence index top lines Financial performance indicators Growth indicators Inflation & labour market indicators Regional & sector stories Source: ICAEW / Grant Thornton Q4 2011 Business Confidence Monitor

Confidence Index remains in negative territory but notably avoids another decline ICAEW / Grant Thornton Business Confidence Index Source: ICAEW / Grant Thornton Q1 2012 Business Confidence Monitor

Confidence broadly unchanged following record decline last quarter Quarterly change in ICAEW / Grant Thornton Business Confidence Index Source: ICAEW / Grant Thornton Q1 2012 Business Confidence Monitor

Shorter term trend shows some encouragement Source: ICAEW / Grant Thornton Q1 2012 Business Confidence Monitor

So what does this mean for growth So what does this mean for growth? On the face of it BCM implies the UK is in a recession (two consecutive quarters of negative growth) Quarter on quarter real GDP growth, per cent ONS revisions mean the BCM Confidence Index was right about growth in Q3 2009 Source: ICAEW / Grant Thornton Q1 2012 Business Confidence Monitor

Outline Confidence index top lines Financial performance indicators Growth indicators Inflation & labour market indicators Regional & sector stories Source: ICAEW / Grant Thornton Q4 2011 Business Confidence Monitor

Turnover growth – and expectations – remain modest and significantly below pre-recession levels Turnover, annual percentage change Pre-recession average: Reported = 6.5% Expected = 6.4% Source: ICAEW / Grant Thornton Q1 2012 Business Confidence Monitor

Reported profit growth still low although encouragingly expectations for growth did not decline further Gross profits, annual percentage change Pre-recession average: Reported = 5.3% Expected = 5.8% Source: ICAEW / Grant Thornton Q1 2012 Business Confidence Monitor

Domestic demand growth remains weak; consumers to be hit by low earnings growth & rising unemployment in 2012 Domestic sales, annual percentage change Source: ICAEW / Grant Thornton Q1 2012 Business Confidence Monitor

Reported export growth stable and expectations remain anchored; but growth is below post-recession peak Exports, annual percentage change Pre-recession average: Reported = 3.6 % Expected = 3.7 % Source: ICAEW / Grant Thornton Q1 2012 Business Confidence Monitor

Capital investment growth expectations continue on downward trend as businesses plan for uncertainty Capital investment, annual percentage change Source: ICAEW / Grant Thornton Q1 2012 Business Confidence Monitor

Just under half of businesses report customer demand as greater challenge than a year ago Share of businesses reporting customer demand as greater challenge Source: ICAEW / Grant Thornton Q1 2012 Business Confidence Monitor

Increasing share of businesses with above normal stocks of finished goods – destocking to come in 2012? Share of businesses with stock levels above normal Source: ICAEW / Grant Thornton Q1 2012 Business Confidence Monitor

Although signs of bout of destocking are not evident yet, this is something to watch closely in 2012 Share of businesses with stock levels below normal Source: ICAEW / Grant Thornton Q1 2012 Business Confidence Monitor

Over half of businesses continue to operate below capacity Share of businesses running at or below capacity Source: ICAEW / Grant Thornton Q1 2012 Business Confidence Monitor

Outline Confidence index top lines Financial performance indicators Growth indicators Inflation & labour market indicators Regional & sector stories

Price growth looks set to fall back Prices, annual percentage change Source: ICAEW / Grant Thornton Q1 2012 Business Confidence Monitor

Input price inflation expected to fall in 2012 Input prices, annual percentage change Source: ICAEW / Grant Thornton Q1 2012 Business Confidence Monitor

Job creation in the private sector labour market remains modest in uncertain times – this rate of growth will not be strong enough to prevent unemployment rising in 2012 Employment, annual percentage change Source: ICAEW / Grant Thornton Q1 2012 Business Confidence Monitor

SMEs to be the main driver of job creation SMEs to be the main driver of job creation? Employment, annual percentage change, Q1 2012, by size of business Source: ICAEW / Grant Thornton Q1 2012 Business Confidence Monitor

Considerable slack in the labour market compared with before the financial crisis Net percentage balance of firms reporting factors to be a greater challenge to business performance Source: ICAEW / Grant Thornton Q1 2012 Business Confidence Monitor

Expected salary growth continues on downward trend Average total salary, annual percentage change Source: ICAEW / Grant Thornton Q1 2012 Business Confidence Monitor

Outline Confidence index top lines Financial performance indicators Growth indicators Inflation & labour market indicators Regional & sector stories

Trend of Business Confidence by Region

Trend of Business Confidence by Industry Sector

Trend of Business Confidence by Company Type

Conclusions On the face of it, Confidence Index points towards economic contraction in Q1 2012; this would mean the UK is already in the midst of a double-dip recession. However, key indicators have not deteriorated significantly this quarter; marginal positive growth is possible; recession not guaranteed. Financial performance indicators continue to show little sign of returning to pre-financial crisis levels, meaning the economic recovery is likely to be slow The Confidence Index is in negative territory for most regions and sectors although hi-tech is a notable bright spot Labour market weakness is likely to continue, with job creation and employee salary growth very subdued Inflation looks set to fall in 2012