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August 08, 2014

Confidence dips ahead of 'modest slowdown'

Confidence dips ahead of 'modest slowdown'Business confidence about the coming year has taken a slight knock although it still remains close to an all-time high, according to a new report.

The UK Business Confidence Monitor has been produced by the Institute of Chartered Accountants in England and Wales (ICAEW) and Grant Thornton. It predicts that there will be a 'modest slowdown' in economic growth later in 2014, with skills shortages becoming a greater challenge to more companies.

The BCM Confidence Index stands at +32.3 this quarter compared to +37.3 in Q2 2014 – the first decline in two years. Altough the UK economy is expected to expand by 0.9.% in Q3 2014, the report says the pace of growth may slow down in the final quarter of this year. The report also finds that growth in employment shows no signs of slowing, but it says salary levels remain muted and getting the right skills is becoming a bigger challenge.

Stephen Ibbotson, ICAEW director of business, said: “Businesses are becoming more realistic about the future. The imbalances in our economic recovery that were masked by rising confidence continue to persist – our exports remain weak and investment isn’t maintaining momentum.”

Scott Barnes, CEO of Grant Thornton UK LLP, said: “Whilst the last quarter reveals there has been a dip, business confidence remains very positive, with growth still relatively strong and the private sector looking to create thousands of jobs. Business is however anticipating a slight slowdown in investment, and sourcing the relevant skills has become a greater challenge for some, particularly in construction.”

In addition, turnover and profit growth expectations are levelling off according to the report, despite forecasts for economic growth of 0.9% for Q3 2014. This suggests that the rate of growth may slow down later on in the year and business investment is also expected to slow. The report suggests that this scenario could pave the way for the Bank of England to raise interest rates in early 2015.

At the same time, however, the findings show that domestic sales rather than exports remain the main driver of growth, reflecting the fact that the UK economy is growing more strongly than its key export markets.

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