Election effect takes its toll on confidence

As we approach a General Election, we see many different opinions being expressed on a multitude of subjects.

All of this can lead to great uncertainty and starts people worrying about the future. Lots of “what if…” images come to mind.

Our latest QCA/BDO Small and Mid-Cap Sentiment Index looks at companies’ confidence in the UK economy over the next 12 months and also asks about their confidence in their own prospects over the same period.

Disturbingly, the percentage of companies who remain optimistic about the UK economy has fallen from 84 per cent to 62 per cent over the last six months, putting confidence levels back to where they were 18 months ago.

Much of the good work done in reviving our economy would be wasted if confidence dived even further, with implications for all quoted companies including the more than 100 in Yorkshire and the Northeast.

Reassuringly, companies remain relatively confident about their own prospects where there is a much smaller dip.

So what does this tell us?

Well my take is that small and mid-size quoted companies are less affected by macro-economic and political turbulence than their bigger brethren.

Companies also generalise their views on economic prospects whilst, because of the closeness to their markets, they can be a lot more specific (and confident) about their own prospects.

They can’t control the economy (who does?), but they can influence the speed and direction of their own businesses.

Underlying these forecasts we have also looked at employment trends.

22 per cent of companies are expecting their workforce numbers to stay the same.

Furthermore, mean expected employment change amongst small and mid-size quoted companies was at an all-time high in our last survey (July 2014) at + 7.1 per cent.

But, this has now fallen to +4.9 per cent.

So the recruitment market could be less buoyant over the next 12 months.

Coupled to this, only 43 per cent of companies are considering raising capital during the coming year.

The last seven years have caused companies to be more realistic, even cautious.

Whilst they are optimistic about their own prospects, they don’t want to tempt fate and over-exaggerate their own

forecasts.

With the General Election only a few weeks away, it’s time to lie low and let the winds of change die down before setting off on the growth path once again.

Hopefully, Spring and Summer will see a new blossoming in business performance as well as in nature.

If companies are right about not being blown over by political and macro-economic gales, then we should find they will generate growth over the medium term, with all that means for employment and the general health of the economy.

*Issue 13 of the QCA/BDO Small and Mid-Cap Sentiment Index is available at: www.theqca.com/cgreview2014