grant thornton/icaew business confidence monitor q2 2014

BUSINESS WITH CONFIDENCE icaew.com

28 April 2014Contact: Caroline Florence

Q2 2014 ICAEW / Grant Thornton Business Confidence Monitor results


Copyright © ICAEW 2014. All rights reserved.

Outline

• Confidence Index top lines• Financial performance indicators– Growth indicators– Inflation & labour market indicators

• Regional & sector stories

Source: ICAEW / Grant Thornton Q4 2011 Business Confidence Monitor


Copyright © ICAEW 2014. All rights reserved. ICAEW / Grant Thornton Q2 2014 Business Confidence MonitorSlide number 3

Confidence holds steady at record-high levelICAEW / Grant Thornton UK Business Confidence Index

Q2

2005

Q3

2005

Q4

2005

Q1

2006

Q2

2006

Q3

2006

Q4

2006

Q1

2007

Q2

2007

Q3

2007

Q4

2007

Q1

2008

Q2

2008

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

-60

-40

-20

0

20

40

60

1.4 -1.3-5.4

5 5.58.8 6.4

2.1

11.54.8

-3.9-7.2

-19.7-25.7

-36.3

-45.3

-28.2

4.8

24.625.8

25.521.5

11.99.613.7

8.1

-9.7-9.3

12

1.14.2

12.816.7

24

31.737.2 37.3



Confidence starting to level off after sustained period of rises

Q2

2005

Q3

2005

Q4

2005

Q1

2006

Q2

2006

Q3

2006

Q4

2006

Q1

2007

Q2

2007

Q3

2007

Q4

2007

Q1

2008

Q2

2008

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

-20

-15

-10

-5

0

5

10

15

20

25

30

35Quarterly change to Confidence Index



After dipping in March confidence has picked up again on the latest dataICAEW / Grant Thornton Business Confidence Index – 3 week rolling trend

15 J

UL

1322

JU

L 13

29 J

UL

1305

AU

G 1

312

AU

G 1

319

AU

G 1

326

AU

G 1

302

SEP

13

09 S

EP 1

316

SEP

13

23 S

EP 1

330

SEP

13

07 O

CT

1314

OC

T 13

21 O

CT

1328

OC

T 13

04 N

OV

1311

NO

V 13

18 N

OV

1325

NO

V 13

02 D

EC 1

309

DEC

13

16 D

EC 1

323

DEC

13

30 D

EC 1

306

JA

N 1

413

JA

N 1

420

JA

N 1

427

JA

N 1

403

FEB

14

10 F

EB 1

417

FEB

14

24 F

EB 1

403

MA

R 1

410

MA

R 1

417

MA

R 1

424

MA

R 1

431

MA

R 1

407

APR

14

20

25

30

35

40

45

33.234.5

3029.3

26

27.927.7

30.431.531.1

3636.8

38.336.9

37.738.3

33.4

30.331.2

36

37.939.4

32.9

36.938.6

42.5

39.140.5

39.539.34039.739.9

36.4

33.131.931.5

36.637.3

UK Average

3 weeks beginning…



Economic growth forecast to accelerate to 1.2% in Q2Quarter on quarter real GDP growth, per cent

Q2

2005

Q3

2005

Q4

2005

Q1

2006

Q2

2006

Q3

2006

Q4

2006

Q1

2007

Q2

2007

Q3

2007

Q4

2007

Q1

2008

Q2

2008

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

QQ growth actualQQ growth estimate



Outline

• Confidence index top lines

• Financial performance indicators

– Growth indicators

– Inflation & labour market indicators


Source: ICAEW / Grant Thornton Q4 2011 Business Confidence Monitor



Turnover growth and expectations continue to accelerateTurnover, annual percentage change

Q2

2007

Q3

2007

Q4

2007

Q1

2008

Q2

2008

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

-4

-2

0

2

4

6

8

… over last 12 months … expected next 12 months



Reported and expected profit growth have also increasedGross profits, annual percentage change

Q2

2007

Q3

2007

Q4

2007

Q1

2008

Q2

2008

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

-4

-2

0

2

4

6

8




Domestic sales and export growth pick upDomestic sales and exports, percentage change versus 12 months ago

Q4

2007

Q1

2008

Q2

2008

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

-4

-2

0

2

4

6

8

Domestic sales Exports



Looking ahead domestic sales expected to drive expansionDomestic sales and exports, expected growth for next 12 months

Q4

2007

Q1

2008

Q2

2008

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

-4

-2

0

2

4

6

8

Domestic sales Exports



… which could prove problematic in terms of the UK’s trade positionUK trade balance, £ millions

Feb-

04

Aug

-04

Feb-

05

Aug

-05

Feb-

06

Aug

-06

Feb-

07

Aug

-07

Feb-

08

Aug

-08

Feb-

09

Aug

-09

Feb-

10

Aug

-10

Feb-

11

Aug

-11

Feb-

12

Aug

-12

Feb-

13

Aug

-13

Feb-

14

-5,000

-4,000

-3,000

-2,000

-1,000

0

1,000



Non-exporters are more confident than exportersShare of businesses more confident in economic prospects, exporters versus non-exporters, Q2 2014

Exporters Non-exporters58%

60%

62%

64%

66%

68%

70%

72%

74%

64%

73%



Q2

2007

Q3

2007

Q4

2007

Q1

2008

Q2

2008

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

-4

-3

-2

-1

0

1

2

3

4


Capital investment growth holds steadyCapital investment, annual percentage change



Significant share of businesses still operating below capacity

Share of businesses operating at and below capacityQ

4 20

07

Q1

2008

Q2

2008

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

30%

35%

40%

45%

50%

55%

60%

65%

Below capacity At capacity



Outline

• Confidence index top lines• Financial performance indicators– Growth indicators– Inflation & labour market indicators




Employment growth expectations accelerateEmployee numbers, annual percentage change

Q4

2007

Q1

2008

Q2

2008

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

-3

-2

-1

0

1

2

3




Expectations are for growth in private sector employee numbers of 450,000 in next year, taking the total into new all-time highsNumber of employees in the UK, thousands

Jan-

07M

ar-0

7M

ay-0

7Ju

l-07

Sep-

07N

ov-0

7Ja

n-08

Mar

-08

May

-08

Jul-0

8Se

p-08

Nov

-08

Jan-

09M

ar-0

9M

ay-0

9Ju

l-09

Sep-

09N

ov-0

9Ja

n-10

Mar

-10

May

-10

Jul-1

0Se

p-10

Nov

-10

Jan-

11M

ar-1

1M

ay-1

1Ju

l-11

Sep-

11N

ov-1

1Ja

n-12

Mar

-12

May

-12

Jul-1

2Se

p-12

Nov

-12

Jan-

13M

ar-1

3M

ay-1

3Ju

l-13

Sep-

13N

ov-1

3Ja

n-14

24,000

24,200

24,400

24,600

24,800

25,000

25,200

25,400

25,600

25,800



SMEs expect solid job creation over the next 12 monthsEmployee numbers, annual percentage change

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

Expe

cted

12

mon

ths

from

Q2

2014

-3

-2

-1

0

1

2

3FTSE 350 Listed Large Private Companies SME Private Companies



Salary growth starting to match inflation…Average total salary, annual percentage change

Q2

2007

Q3

2007

Q4

2007

Q1

2008

Q2

2008

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

-2

-1

0

1

2

3

4

5

6

… over last 12 months … expected next 12 months Consumer price index (CPI) inflation



So “cost of living crisis” becoming less of an issue ahead of the next electionReal total salaries, annual percentage change*

Q1

2007

Q2

2007

Q3

2007

Q4

2007

Q1

2008

Q2

2008

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Nex

t 12

mon

ths

-5

-4

-3

-2

-1

0

1

2

* Total salary growth reported in the BCM minus consumer price index (CPI) inflation** Expected salary growth for next 12 months minus Office for Budget Responsibility’s CPI forecast for 2014 as a whole N

ext 1

2 m

onth

s **



Staff turnover becoming more of an issue as unemployment fallsNet percentage balance of firms reporting factors to be a greater challenge to business performance

Q4

2007

Q1

2008

Q2

2008

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Availability of management skills Availability of non-management skills Staff turnover



Outline

• Confidence index top lines• Financial performance indicators– Growth indicators– Inflation & labour market indicators




Trend of Business Confidence by Region

UK AVERAGE LondonSouth East (excl

London) South West East of England East Midlands West Midlands

0

10

20

30

40

50

Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014

UK AVERAGE North West Northern England Yorks & Humber England Wales

05

10152025303540455055



Trend of Business Confidence by Sector

UKALL

PRODUCTIONEnergy, Water &

MiningManufacturing & Engineering

CON-STRUCTION

0

10

20

30

40

50

Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014

ALLSERVICES

Retail & Wholesale

Transport & Storage

Banking, Finance

& Insurance PropertyBusiness Services

IT & Commu-nications

05

10152025303540455055



Confidence rises in Production industriesICAEW / Grant Thornton Business Confidence Index, by sector

Q4

2007

Q1

2008

Q2

2008

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

-60

-40

-20

0

20

40

60

All Production industries Construction All Service industries



Property sector confidence at a record highICAEW / Grant Thornton Business Confidence Index

Q2

2004

Q3

2004

Q4

2004

Q1

2005

Q2

2005

Q3

2005

Q4

2005

Q1

2006

Q2

2006

Q3

2006

Q4

2006

Q1

2007

Q2

2007

Q3

2007

Q4

2007

Q1

2008

Q2

2008

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

-60

-40

-20

0

20

40

60



Construction and Property sectors supported by housing market revivalONS new private housing construction output (GB), year-on-year % change

Feb-

12

Mar

-12

Apr

-12

May

-12

Jun-

12

Jul-1

2

Aug

-12

Sep-

12

Oct

-12

Nov

-12

Dec

-12

Jan-

13

Feb-

13

Mar

-13

Apr

-13

May

-13

Jun-

13

Jul-1

3

Aug

-13

Sep-

13

Oct

-13

Nov

-13

Dec

-13

Jan-

14

Feb-

14

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%



Big differences in spare capacity by sectorShare of businesses operating below capacity, Q2 2014, %

Banking, Finance & Insurance

IT & Communications

Energy, Water & Mining

Property

Construction

All Service Industries

Transport & Storage

Retail & Wholesale

Business Services

All Production Industries

Manufacturing & Engineering

0% 10% 20% 30% 40% 50% 60% 70%



Property sector reports strong capital investment growthCapital investments growth, Q2 2014, %

Business Services



Retail & Wholesale


Transport & Storage

Construction



IT & Communications

Property

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5

Expected next 12 months Last 12 months



Tech industries lead growth in R&D budgetsR&D budget growth, Q2 2014, %

Property

Construction

Business Services






Retail & Wholesale

Transport & Storage

IT & Communica tions

-0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5

Expected next 12 months Last 12 months



Relatively high share of construction businesses report management skills to be a greater challengeNet % of businesses reporting availability of skills to be a greater challenge than a year ago, Q2 2014


Business Services



Property


Retail & Wholesale


Transport & Storage

IT & Communica tions

Construction

0% 5% 10% 15% 20% 25% 30%

Availability of non-management skills Availability of management skills



Employee growth – last 12 monthsBanking, Fi-

nance & In-

surance

Transport &

Storage

Re-tail & Wholesal

e

Manufac-tur-ing &

En-gi-

neer-ing

All Pro

duc-tion In-

dus-tries

All Ser-vice In-

dus-tries

UK Na-

tional Av-er-age

En-ergy, Wa-ter & Min-ingPropertyConstructionBusiness Ser-vice

s

IT & Commu-

nica-tions

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0



Employee growth – next 12 monthsTransport &

Storage

Manufac-tur-ing &

En-gi-

neer-ing

All Pro

duc-tion In-

dus-tries

Re-tail & Wholesal

e

Banking, Fi-

nance & In-

surance

En-ergy, Wa-ter & Min-ing

UK Na-

tional Av-er-age

All Ser-vice In-

dus-triesPropertyBusi

ness Ser-vice

s

IT & Commu-

nica-tionsConstruction

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0



Trend of Business Confidence by Company Type

UK Confidence Index ALL UK LISTED FTSE 350

ALL PRIVATE COMPANIES

Private Companies Large (250+ staff)

Private Companies SME (<250 staff)

05

1015202530354045

Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014



Conclusions• Business confidence holds steady in Q2 2014 after six consecutive

quarters of rising confidence.

• Economy forecast to expand by 1.2% in Q2 2014, meaning that GDP will finally exceed its pre-financial crisis peak in the second quarter.

• Reported turnover and profit growth continue to pick up and businesses expect an acceleration over the next 12 months.

• Businesses expect domestic sales to be the key driver of growth going forward, rather than exports. Exporting businesses are less confident than non-exporting businesses.

• Staff headcount growth is expected to accelerate, pushing employment levels further into record highs.

• Total salary growth is in line with inflation on the latest data, suggesting the cost of living crisis is drawing to a close.

• Confidence is highest in the Property, Construction and IT & Communications sectors.

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grant thornton/icaew business confidence monitor q2 2014

Economy & Finance

annual percentage

living crisis

employee growth

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slide number

greater challenge

exporting

sector stories