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Pressure grows on ministers for growth strategy

BUSINESS confidence has slumped with companies seemingly resigned to the “new normal” of no growth or slow growth, two new surveys claim today.

Their findings heap pressure on Government ministers to come up with effective new policies to encourage businesses to investment.

A monthly survey by accountancy firm BDO found that business optimism has fallen to its lowest reading in more than two decades.

A separate annual report by insurer QBE reveals that only nine per cent of UK businesses expect to see a full recovery in less than two years.

Peter Hemington, a partner at accountancy firm BDO, said: “In spite of a strengthening labour market, businesss confidence continues to weaken and improving hiring intentions are not translating into growth plans.

“It seems the damaging effects on businesses of five years’ zig-zagging economic growth has left them wary of making concrete plans for expansion and resigned to the ‘new normal’ of economic stagnation.

“To end this cycle, it is imperative that the Government implements plans to expedite growth.

“Without growth incentives, we will continue to see UK businesses reluctant to invest and expand, which poses a grave threat to the UK’s economic recovery.”

BDO’s Optimism Index, which predicts business performance two quarters ahead, fell to 88.9 in January from 90.3 in December. It is the eighth consecutive month that the reading has remained below 95.0, the mark which indicates growth.

The mid-tier accountancy firm said this suggests that the economy will struggle to grow this quarter, which poses the risk of a triple-dip recession.

The UK economy shrank in the final quarter of 2012. The Bank of England last week predicted “a slow but sustained recovery” and said it is ready to provide more stimulus if needed.

Despite the pessimism, BDO said the measure of business hiring intentions has increased to its highest level since April 2012. It highlighted rallying confidence in the manufacturing sector, indicating order book strength.

BDO’s research is based on responses from more than 4,000 companies employing a total of five million people. It incorporates findings from CBI, Bank of England and Chartered Institute of Purchasing and Supply surveys.

QBE, the Australian insurance giant with offices in Yorkshire, said its annual sentiment survey showed that UK businesses are learning to adjust to the prevailing conditions of “no growth or slow growth”.

QBE said that 87 per cent of businesses expect the recovery to be two years or more and 61 per cent believe it will be 2016 before a full recovery can be expected.

David Kelly, commercial manager in Leeds, said: “Almost all of our region’s businesses expect it to be a long haul before the economy fully recovers.

“While the hope of a quick recovery has certainly petered out over the time QBE has been conducting this research, it is encouraging to now see a level of stability from businesses here.

“Most of their cost-cutting measures have been implemented, leaving management to focus on growing turnover.

“While the prospects for the economy may look weak, businesses in Yorkshire and the North East remain resilient.”

QBE’s research was based on responses from 400 businesses, including 55 in Yorkshire, during January. The region’s companies were marginally more upbeat than their national counterparts.

More than three quarters of the region’s companies expect to keep staffing levels the same during 2013, significantly up from 18 per cent in 2012.

The survey also revealed a large reduction in the proportion of businesses intending to employ new staff, with the figure falling to 13 per cent this year from 58 per cent in 2012.

Mr Kelly told the Yorkshire Post: “I don’t think there’s a general external solution that’s going to help overnight. We’re just going to have to work our way through it.”

He said QBE’s experience in Yorkshire backs up the findings of the research.

“A lot of premiums are based on turnover and wages. They are certainly not going up and in many cases are reducing. That’s something we are seeing on a day to day basis,” said Mr Kelly.

He added: “Austerity is the order of the day.”

 

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