1. UK BUSINESS CONFIDENCE MONITOR REPORT
Q1 2011

2. Contents About BCM The key findings:
business confidence; business financial performance; factors affecting performance; trends
ICAEW and public policy
About ICAEW
This presentation has been developed to provide you with a summary of the key findings in the Business Confidence Monitor for Q With accompanying speaker notes, it provides a narrative that is easy to present to your committees, colleagues and clients and should take no longer than 15 minutes to present.
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3. About BCM

4. About BCM
BCM is one of the largest and most comprehensive quarterly reviews of UK business confidence
It provides a regular snapshot of the economy, informed by senior business professionals running all types of businesses across the UK
The report is shared with a range of policy-makers, the business community, academics and researchers
It is a credible predictor of GDP and economic change and supports policy and decision making.
BCM is one of the largest and most comprehensive quarterly reviews of UK business confidence and provides a regular snapshot of the economy, informed by senior business professionals running all types of businesses across the UK. It is shared with a range of national and regional policy-makers, the business community, academics and researchers. It is a credible predictor of GDP and economic change and supports policy decision-making.
BCM began in 2003, with surveys conducted every quarter since. The latest report is based on 1000 telephone interviews conducted 25 October – 26 January 2011, with ICAEW members working in industry and commerce. These probed opinions on past performance and future prospects for members’ businesses, as well as investigating perceived changes in the impact of factors such as availability of skills, government regulation and the tax regime. Data are weighted to represents the UK economy by value.
Since Q the monitor has been sponsored by Grant Thornton.

5. The key findings …

6. Despite the disappointing GDP figures for the last quarter of 2010, the BCM is still above the pre-recession average, indicating that there will be a degree of limited growth in 2011.
Michael Izza Chief Executive
The latest ICAEW / Grant Thornton UK Business Confidence Monitor (BCM) shows that the economy is slowly recovering, even though confidence has continued to weaken. Although the UK economy is still in a difficult phase, it shows that there will be growth in 2011 as businesses become stronger.

7. Trend of Business Confidence UK and regions
The latest ICAEW/Grant Thornton UK Business Confidence Monitor (BCM) shows a continuing downward trend in business confidence in Q
The pace of decline has slowed following the sharp drop of 9.6 points in Q The Index is gradually returning to levels typically seen before the financial crisis, dropping back down after having reached historic highs between Q and Q
Base: All

8. Business confidence ONS figures show that GDP fell at the end of 2010
Double-dip recession is not expected
Growth in Q1 may be stronger
There are still a number of risks to financial growth.
The Office of National Statistics published its first estimate of GDP for Q in January, showing the economy lost all momentum at the end of the year, contracting by 0.5% quarter on quarter in Q
However, the Confidence Index points to positive quarterly growth in Q rather than a return to recession.
Those sectors most affected by the adverse weather conditions in 2010, such as Construction, could show significant expansion as projects that were delayed by the snow resume, leading to a stronger growth picture in Q1.
There are a number of risks to growth – with VAT at 20% and pressures on real income as the cost of living rises against pay freezes. However, the BCM remains above the pre-recession average which suggests a degree of limited growth during the year.

9. Business financial performance
Annual growth rates are highest since the end of 2008
Export growth continues to strengthen
Businesses have rebuilt stock levels following the downturn
The rise in input prices is the highest since Q1 2009
Predicted employment growth is unchanged.
There is continuing improvement in businesses’ financial results, with annual growth rates of business turnover, profit and export performance all rising in comparison to the previous quarter. They now stand at their highest rates since the end of 2008.
Hopes of an export-led recovery remain strong with annual export growth outstripping growth in all other KPIs tracked by BCM Exports have grown by 4.0% over the past year and exports are expected to grow by 4.6% over the next 12 months. UK products and services are more price-competitive in global markets due to the relatively low value of sterling. Domestic demand is expected to be weak, putting more emphasis on export.
Stock levels are returning to normality – businesses rebuilding stocks that have run down during the downturn will give a short-term boost to economic growth which could now be at an end.
Firms have reported an annual increase in input prices of 2.4% - the highest since Q This will put a squeeze on margins and firms will need to decide whether to pass on these cost rises to customers. Input price inflation mirrors movements in international commodity markets.
The predicted employment growth at 1.1% is the same as Q – this figures implies at least 100,000 new private sector jobs created in 2011, although this would not necessary be permanent, full-time roles.

10. Factors affecting performance
More needs to be done to support private enterprise
Factors increasingly seen as a greater challenge to performance include:
The tax burden
Government support for business
Customer demand
Regulatory requirements
Despite the government moving towards a tax regime that is conductive to private enterprise, firms are looking for further progress, particularly as the private sector is expected to provide jobs and income for the UK economy over the coming years.
The factors
21% of businesses reported the tax burden as a greater challenge to performance than 12 months ago – up from 15% at the start of 2010.
11% of firms also report government support for business is a greater challenge than 12 months ago, up from 6% last year.
The increase in the number of businesses reporting customer demand as a greater challenge to business performance than 12 months ago reflects ongoing concerns that pressures on consumer spending will curtail demand – particularly in the Construction sector, reflecting the diminishing number of public sector contracts available.
The financial services sector contributes around 8% to total GDP so concerns from this sector over increasingly stringent regulatory requirements represent a risk to the economy. Ongoing calls for government intervention will also fuel bankers’ concerns.

11. Trends in business confidence
Confidence continues to vary across sectors, mostly without notable change
However, confidence in the construction sector has collapsed
Confidence is significantly weaker than last year in most regions
Listed companies continue to record higher confidence than private ones.
Confidence is largely unchanged across the service sector as a whole following a sharp decline at the end of There has been a downward shift in confidence in financial services, property and business services while Retail & Wholesale and Transport & Storage have reported a more positive trend. A drop in confidence in the Manufacturing & Engineering sector could be down to concerns about reductions in public sector business.
The only notable movement this quarter is in the Construction sector. The sharp drop in confidence may be down to the bad weather at the end of 2010, as well as ongoing concerns about public sector investment which is almost certainly the biggest driver of the negative outlook. Confidence has fallen by 40 points since Q and saw a sharp drop from 6.3 in Q to in Q
The South West, North West and Wales reported negative movements in confidence, while London and Scotland stayed relatively strong.
London is less dependent on the public sector and its service firms have a more globalised outlook. Financial services sector is important in London and also an important part of the Scottish economy but while the public sector is also important in Scotland, confidence remained robust as the national government worked to guard against the worst effects of UK-wide fiscal belt tightening.
Confidence among private companies has remained below that of listed ones, which are more likely to have an international focus. Private firms also have a greater reliance on bank finance.

12. ICAEW and public policy …+

13. How ICAEW has been influencing public policy
Budget submission letter to the Chancellor
Events and meetings at the UK Party Conferences
Submission for the G20 meeting in Seoul
Written and oral evidence submissions to the House of Lords inquiry into competition and choice in the audit market.
Our budget submission letter proposed ways to build a business-led recovery to the coalition government, and offered ICAEW’s expertise
We held a number of round-table events and public meetings at the UK Party Conferences in order to position the ICAEW as an influencer in the development of the legislative and budget programme and offer expertise of ICAEW to all political parties in the development of policy
We built on past G20 submissions, positioning ICAEW as a voice for the accounting and finance profession with senior politicians and global leaders
This submission aimed to influence the direction of the debate over accounting standards, sustainability and other global issues.
Our submissions positioned ICAEW and its members as an independent voice on the discussion around how audit needs to evolve to reflect the lessons learnt from the crisis.

14. About ICAEW … +

15. ICAEW is a world leader of the accountancy and finance profession …
ICAEW is a professional membership organisation, supporting over 136,000 chartered accountants around the world. Through our technical knowledge, skills and expertise, we provide insight and leadership to the global accountancy and finance profession. Our members provide financial knowledge and guidance based on the highest professional, technical and ethical standards. We develop and support individuals, organisations and communities to help them achieve long-term, sustainable economic value. Because of us, people can do business with confidence.

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Getting in contact …
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