UK business growth has begun to wane as a recent survey reveals the number of companies reporting one ‘key indicator’ of growth has fallen by 12 percent. According to the latest research by insolvency trade body R3, 57 percent of business reported one sign of business growth in March 2016, compared to 69 percent in December 2015.
Although the insolvency trade body said that levels of business distress in the UK are still relatively low, this is the first sign of the performance of companies starting to plateau. In every survey since October, at least 65 percent of British businesses have reported at least one sign of growth, meaning the recent results represent a three-year low.
Consolidation after rapid growth
Andrew Tate, the president of R3, believes the latest results are most likely to be a sign that some businesses are choosing to consolidate after a period of rapid growth. He said: “This is a deceleration rather than businesses going backwards. UK businesses have moved into a new phase of the economic cycle.
“The relatively rapid growth associated with recovery and the boost provided by low inflation and low fuel costs last year look as though they are now fading away. However, levels of distress are still relatively low.”
Business growth indicators
These latest growth figures come from R3’s Business Distress Index, a long-running survey of 500 UK businesses. The survey shows that 57 percent of those businesses reported at least one key indicator of growth, including:
• Increased profits – 35 percent
• Increase sales volumes – 33 percent
• Investing in new equipment – 25 percent
• Business expanding – 25 percent
• Market share has grown – 23 percent
Business distress indicators
According to the research, just 18 percent of UK businesses are showing at least one sign of distress. This is the second lowest this figure has been, and well below the record high of 64 percent in March 2012. The proportion of businesses reporting an indicator of stress was as follows:
• Decreased sales volumes – 8 percent
• Decreased profits – 7 percent
• Had to make redundancies – 6 percent
• Regularly using maximum overdraft – 5 percent
• Market share fallen – 5 percent
UK business confidence slides
To compound the disappointing business growth figures, new research into the confidence of UK businesses has shown a similar lull. The ICAEW Grant Thornton Business Confidence Monitor (BCM), now in its tenth year, showed a sharp decline in confidence in Q2 2016.
The report, which presents the survey findings of a poll of a group of 1,000 chartered accountants, shows a continued fall in business confidence over the past two years. The result for Q2 2016 is a four-year low.
This fall in confidence is replicated across almost all business sectors, with business services and the financial sector hit particularly hard. Confidence has also fallen into negative territory in the property, banking and construction sectors, despite a sharp fall in the number of construction company insolvencies. This falling confidence can be seen across a full range of companies, from listed UK businesses to large private companies and SMEs.
Increasing risk is a major factor
The research reveals the important role risk has to play in the low levels of business confidence. The inability to predict the future given the current economic climate means businesses of any size, operating in any sector, are not able to plan effectively.
This has been caused by a number of factors, including global concerns, such as slowing economic growth and the threat of the downturn in China. Closer to home, the impending EU referendum and the response to the recent March budget are all adding to the negative sentiment.
Written by: Mike Smith