Recovery to slow as firms less optimistic
Published 23/08/2010 | 08:00
The economic recovery looks set to slow down during the second half of the year following a fall in confidence among businesses, research indicated today.
Nearly a fifth of businesses now feel less confident about the coming year than they did during the second quarter, according to accountancy body ICAEW and accountants Grant Thornton.
The groups said the emergency Budget, which set out a range of tax rises, and the looming Comprehensive Spending Review, had taken its toll on firms' confidence.
The renewed caution among companies caused the groups' business confidence index to drop back four points during the third quarter to 21.5, indicating the recovery could slow down.
Michael Izza, chief executive of ICAEW, said: "UK businesses that came through the recession are now facing the challenge of surviving the recovery.
"They still don't know what the future holds and are uncertain about how the mood of fiscal austerity will impact the economic recovery.
"Government needs to deliver on its commitment to ensure Britain is open for business while taking the tough decisions required to tackle the deficit."
But despite the fall in confidence, there was a notable improvement in firms' finances, with both turnover and profit growth returning to positive territory for the first time since the beginning of 2009, at 1.6% and 1.7% respectively.
Capital investments are expected to rise by 2% during the coming year, while research and development budgets are set to increase by 1.4%.
At the same time, companies reported their smallest annual fall in staff numbers since the first quarter of 2009, while they expect the number of people they employ to increase by 1.1% during the next year.
But they are predicting only modest pay rises for workers, with salary growth expected to be around 1.5% during the next 12 months.
Scott Barnes, chief executive of Grant Thornton, said: "Clearly economic conditions remain tough but there are signs that some companies are looking to switch from short-term survival measures to opportunities for growth."