Business confidence is at its highest level for two years, according to the latest ICAEW Business Confidence Monitor (BCM) report. What’s more, the positivity is widespread with 10 out of 11 regions and most sectors showing an improvement. Companies who export are significantly more confident than those who rely on the domestic market.

Here, we highlight some of the BCM findings that are most relevant to our clients. A copy of the full report can be found on the ICAEW website here.

Sales and Brexit progress driving confidence upwards

Confidence has been rising steadily over the last year in line with sales growth. Progress with Brexit discussions has given businesses some assurance over how the transition period will work, easing fears over the freedom to negotiate deals during the transition period, as well as concerns about the rights of EU workers in the UK up to 2020.

Sales growth has been evenly balanced across domestic and export markets, with both growing faster than last year.  This trend is expected to continue over the next 12 months. The three fastest growing sectors are banking and financial services, manufacturing, and business services.

Businesses are also doing a good job of controlling staff costs. As a result – despite the continued squeeze on margins and higher than expected costs for energy and materials – average profitability is up slightly (4% growth compared with 3% a year earlier). As we begin to fee the effects of an improved sterling exchange rate, costs are expected to drop, which in turn will help profitability.

Research and development (R&D) expenditure is showing steady growth, although forecasts for the next 12 months are more modest. Since the second quarter of 2013, R&D expenditure has outstripped forecasts. It’s likely this is due to the growing importance of innovation in helping businesses grow their market share, and the availability of valuable tax incentives, which help to reduce the cost of R&D investment.

Staffing and regulation still a concern for businesses

Regulation is now clearly the strongest growing challenge facing companies. Gender Pay Gap reporting and the General Data Protection Regulations (GDPR) are amongst the recent requirements businesses are grappling with. Unknown legislative changes connected to Brexit are adding to the concerns of businesses who are already feeling the pressure of existing requirements.

Businesses are reporting increasing difficulties in replacing staff. Net migration to the UK is down on a year ago and the unemployment rate is at its lowest since 1975. Sectors that rely on migrant workers – such as construction and some business services – are finding it particularly hard to fill positions. Reports from our clients also show this to be true within the hospitality sector.

An improving picture

Despite continued uncertainty about the impact of Brexit, there is encouragement to be found in the latest BCM report. Companies of all sizes and types, both privately and publicly owned, reported a notable improvement in their outlook for the coming 12 months. In addition, growth in sales, which is already the highest in two-and-a-half years, is expected to continue its steady upward trend and profits look set to follow.

For help and advice on responding to the challenges facing your business, contact Adrian Le Roux.