Recovery UK economy to weaken on decreased business confidence

08-24-2010 13:35

Confidence among UK companies has decreased due to planned tax hikes and the looming expenditure review, according to ICAEW and Grant Thornton. Companies posted improved profit and turnover figures in the second quarter. They expect to increase capital investments and to raise research and development budgets in the next twelve months.

Business confidence

The economic recovery is set to weaken in the third and fourth quarter of 2010 due to a drop in firms’ confidence. The survey shows that almost 20% of the companies have less confidence for the next year than they did in the second quarter. Confidence among firms decreased as a result of the emergency budget and the upcoming extensive review. The new prudence among firms has a negative impact on the groups’ business confidence gauge. This index fell four points in the second quarter to 21.5, signaling that the recovery could weaken.

Recovery UK economy

“UK companies that managed to endure the recession now have to survive the recovery. The future remains uncertain and it’s still unclear how the fiscal measures will influence the economic recovery. The coalition government is forced to take harsh measures to reduce the deficit. In the meantime, it has to ensure that the UK economy continues to function well,” Michael Izza, CEO for ICAEW, commented.

UK companies

Nevertheless, UK companies posted improved turnover (1.6%) and profit (1.7%) figures. Firms are set to spend 2% more on capital investments in the next twelve months, while research and development investments will rise by 1.4%.

Workforce – salaries

Firms reported their smallest yearly decrease in workforce since the first three months of last year. Companies forecast to employ 1.1% less people during the next year. They expect salaries for their staff to increase by approximately 1.5% in the next twelve months.

Harsh economic conditions

“There are indications that some firms choose growth chances instead of short-term policies, despite the fact that economic conditions remain harsh,” Scott Barnes, CEO for Grant Thornton, commented.