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Business confidence is said to have weakened in all UK nations and regions, with those in Scotland and Wales being the least confident, according to a survey conducted by the ICAEW’s Business Confidence Monitor (BCM).
It is reported that sentiment in London was at 0 and was the only part of the UK where confidence was not in negative territory.
The survey results come as economic conditions are expected to be even tougher in the year ahead. The ICAEW have stated that short-term targeted support will be needed to keep many businesses afloat.
The institute also cited higher costs, “significant” skills shortages and tax, as well as transport challenges likely driving the decline in optimism and demonstrating the cost of doing business crisis that companies faced currently.
In addition, the institute added that direct fiscal support will also be required to help households and businesses with their energy bills this winter, and for those struggling with the impact of inflation more widely.
Businesses have reported that input prices have grown at their highest rate since the BCM began in 2004, with firms in the manufacturing, engineering and construction sector experiencing the biggest rise in prices.
As a result, businesses hiked their selling prices at a record rate, the BCM found, as companies expect the high rate of inflation to continue, affecting input costs, salaries and investment. The cost of doing business crisis is expected to persist in 2023.
It added that the labour market has also become “extremely tight” with two-fifths of businesses reporting a shortage of non-management skills, which has particularly affected firms in the transport and storage sector. Staff turnover was a pressing issue for 43% of companies, while at 29% the proportion reporting a shortage of management skills was less prominent but growing.
Meanwhile, regulatory problems and the tax burden, reflecting the level of taxes companies and customers are now facing, were “growing” issues for 39% and 27%, respectively. The proportion of companies citing the tax burden as a problem was a record high for the survey.
Michael Izza, CEO of ICAEW, said: “It’s little surprise that business confidence has plunged back into negative territory amid record cost pressures and intensifying staff and skills problems. The cost of doing business is causing a crisis for firms and this will only get worse in the coming months.
“The UK economy is in transition, and decisions made by the new prime minister in their first days and hours in office will dictate the future of our economy for years to come.”
He added: “With inflation running at levels not seen for 40 years, ministers must provide targeted support for struggling businesses and households to keep the lights on this winter.”
Suren Thiru, economics director for ICAEW, said: “The latest results suggest that the UK economy is at a perilous turning point as unprecedented inflationary pressures and chronic supply constraints stifle economic activity.
“Record high price pressures suggest that the current inflationary surge will intensify considerably in the coming months. A perfect storm of growing input costs for businesses, eye-watering energy bills and persistent supply constraints means that inflation could peak higher and later than the Bank of England predicts.”
He added: “The speed at which these headwinds are suffocating business activity and shattering people’s incomes means that without action, a painful downturn looks inescapable.”
