Global Economic Conditions Survey reveals that UK business confidence dipped despite improved fundamentals in Q2 2014
UK business confidence fell slightly in the second quarter of 2014 with 37% of UK respondents reporting confidence gains, down from 40% in Q1, according to the latest survey of finance professionals.
This slight fall, recorded by the Global Economic Conditions Survey from ACCA (the Association of Chartered Certified Accountants) and the Institute of Management Accountants (IMA) comes despite UK finance professionals reporting significant improvements in cashflow and demand conditions, to the best levels seen in the last two and a half years.
This has been assisted by a combination of the stabilising of exchange rates and the easing of access to growth capital.
Commenting on the findings, Manos Schizas, senior economic analyst at ACCA, said:
"This quarter's confidence losses were pretty marginal. In addressing short-term prospects, it's worth bearing in mind that the recovery in UK business capacity building continued in Q2 and shows no immediate signs of weakening. Current independent forecasts for GDP growth in 2014 range from 2.4% to 3.5%; a forecast consistent with today's GECS readings would be at the very top of that range."
When it comes to the longer term, however, the GECS results provide much food for thought; UK respondents reported dwindling opportunities for both organic and inorganic growth in Q2. Emmanouil Schizas warns, "This trend is worth watching and could indicate a soft patch for the economy in the months to come – but that's not what members see happening at the moment." According to the report, the UK macro-economic outlook remained almost entirely unchanged, with 71% of UK respondents believing that conditions were improving or about to do so, up from 70% in Q1 2014.
The tapering out of austerity policies provides one explanation for the robustness of the UK macro-economic outlook. Manos Schizas explains: "This quarter marked a turning point in expectations of fiscal policy, as for the first time since the recession, UK respondents now believed that public spending was due to increase over the next five years. But this shift in expectations also came with a warning, as on balance respondents felt that spending should not rise, but rather remain flat. Still, approval of UK government policy rose significantly, heading comfortably into positive territory for the first time since the GECS began."
Scotland continued to outperform the rest of the UK in terms of improving business confidence, due to more favourable cashflow and demand conditions and a better supply of business opportunities. Among the English regions only the South West and North East showed signs of robust confidence growth in the first half of 2014.
Meanwhile, at the global level, both business confidence and the macro-economic outlook remained relatively stable. Globally finance professionals reported a marginal loss of business confidence, up from 31% in the previous quarter to 32% in Q2. Similarly respondents' macro-economic outlook remained mostly unchanged, with 58% believing that conditions were improving or about to do so, and 38% believing that conditions were deteriorating.
However, these figures disguise significant variation across the continents. Business confidence was down throughout Asia, Western Europe, Africa and the Middle East, while most of the confidence gains have come from North America and a temporary rebound in Central and Eastern Europe. Only Malaysia stands out as a clear winner over the last quarter, building further on confidence gains made earlier in the year. The US, Russia and China also reported confidence gains, but these were not enough to reverse the general downward trend over the first half of 2014.
Manos Schizas concludes, "Global business confidence has once again become more contingent on financial stability. The persistence, for a second year running, of this worrying trend suggests that the recovery is becoming increasingly confined to small pockets of stability within the global economy, as ACCA and IMA have repeatedly warned. At the same time, the impact of non-organic growth opportunities on business confidence has recovered, while that of organic business opportunities and access to growth capital has remained low after falling significantly in early 2014.
This combination casts further doubts on the health of the recovery."
The Global Economic Conditions Survey (GECS), carried out jointly by ACCA and IMA, is the largest regular economic survey of accountants in the world, in terms of both the number of respondents and the range of economic variables it monitors. Its main indices are good predictors of GDP growth in the OECD countries and daily trend deviations correlate well with the VIX or 'fear' index, which measures expected stock price volatility.