Institute of Chartered Accountants in England and Wales (ICAEW) has released its quarterly Business Confidence Monitor (BCM) report, which surveys chartered accountants across the UK to find out how confident they feel about the economic prospects facing the businesses they work with.
Business confidence in London is negative, standing at -13.0 in the second quarter of 2019, although it is slightly higher than the UK as a whole, which is at -16.6. ICAEW’s BCM found that Brexit uncertainty continues to be a concern for businesses and that difficult conditions in the Property and Retail & Wholesale sectors, both of which are prominent within the capital, may also be weighing down business confidence.
Harpreet Panesar, ICAEW Director for London said, “Businesses in London have told us that they don’t see things changing much in the next few months, and this is reflected by their low confidence. Property and Retail, sectors which play a huge part in helping to drive London’s economy, are facing lots of challenges and the businesses we heard from say they urgently need clarity to help them ensure they can prepare for the future.”
Companies based in London are facing several challenges. Regulatory requirements are a growing issue for 50% of businesses, compared to 46% nationally. And the availability of non-management skills is a pressing concern for 21% of companies, up from the 14% reported to ICAEW’s BCM a year ago. This may reflect increasing tightness in the London labour market. The latest ONS Labour Force Survey data gives an unemployment rate of 4.4% in the three months to March 2019, significantly below the historical average for the capital (at 8.3% between 1992 and 2019). This may also help to explain the uptick in total wages growth in Q2 2019.
That said, companies in London have increased their investment expenditure. Capital investment growth of 2.3% is in line with the historical average, while a rise in Research & Development (R&D) budgets of 3.3% is markedly faster than the historical norm for London. Growth across both types of investment is also outpacing their respective national averages. And staff development spending is rising by 1.8% in Q2 2019, up from 1.1% in the year before.
Healthy investment growth could partially reflect increased spending within the important financial services sector. Indeed, capital investment and R&D budgets in Banking, Finance & Insurance are rising by 3.2% and 2.8% year-on-year in Q2 2019 (up from 2.6% and 1.7% a year ago) with companies in the sector attempting to streamline systems and lower their operational costs in the face of increased competition.
Prospects for the next 12 months
Looking ahead, companies project that exports, domestic sales and profits will all expand at faster rates over the next 12 months, at 4.3%, 3.7% and 3.6% respectively. However, businesses are set to be more restrained in their investment spending, with companies planning to moderate growth in capital investment and R&D spending in the year ahead, to 1.9% and 2.3%.