ICAEW/Grant Thornton UK Business Confidence Monitor Q3 2013

BUSINESS WITH CONFIDENCE icaew.com

29 July 2013

Contact: Caroline Florence

Q3 2013 ICAEW / Grant Thornton Business

Confidence Monitor results


Copyright © ICAEW 2013. 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 2013. All rights reserved. ICAEW / Grant Thornton Q3 2013 Business Confidence Monitor Slide number 3

Business confidence reaches its highest level

since Q2 2010 ICAEW / Grant Thornton Business Confidence Index

8.8 6.4

2.1

11.5

4.8

-3.9 -7.2

-19.7

-25.7

-36.3

-45.3

-28.2

4.8

24.6 25.8 25.5 21.5

11.9 9.6

13.7

8.1

-9.7 -9.3

12

1.1 4.2

12.8 16.7

24

-60

-50

-40

-30

-20

-10

0

10

20

30

40

Q3 2

00

6

Q1 2

00

7

Q3 2

00

7

Q1 2

00

8

Q3 2

00

8

Q1 2

00

9

Q3 2

00

9

Q1 2

01

0

Q3 2

01

0

Q1 2

01

1

Q3 2

01

1

Q1 2

01

2

Q3 2

01

2

Q1 2

01

3

Q3 2

01

3

UK Average



Business confidence has increased now for four

consecutive quarters

-20

-15

-10

-5

0

5

10

15

20

25

30

35

Q3 2

00

6

Q1 2

00

7

Q3 2

00

7

Q1 2

00

8

Q3 2

00

8

Q1 2

00

9

Q3 2

00

9

Q1 2

01

0

Q3 2

01

0

Q1 2

01

1

Q3 2

01

1

Q1 2

01

2

Q3 2

01

2

Q1 2

01

3

Q3 2

01

3

Quarterly change to Confidence Index



Confidence has risen sharply in recent weeks

-20-18-16-14-12-10

-8-6-4-202468

10121416182022242628303234363840

THREE WEEKS BEGINNING ……..

UK BCM CI TREND - 3 WEEK ROLLED (Each point based on c.230)

Where the line passes thru 4 vertical grid boxes the change is significant.



Economy expected to grow by 1.0% in Q3 – this would be the

fastest growth since Q2 2010 Quarter on quarter real GDP growth, per cent

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

Q3 2

00

6

Q4 2

00

6

Q1 2

00

7

Q2 2

00

7

Q3 2

00

7

Q4 2

00

7

Q1 2

00

8

Q2 2

00

8

Q3 2

00

8

Q4 2

00

8

Q1 2

00

9

Q2 2

00

9

Q3 2

00

9

Q4 2

00

9

Q1 2

01

0

Q2 2

01

0

Q3 2

01

0

Q4 2

01

0

Q1 2

01

1

Q2 2

01

1

Q3 2

01

1

Q4 2

01

1

Q1 2

01

2

Q2 2

01

2

Q3 2

01

2

Q4 2

01

2

Q1 2

01

3

Q2 2

01

3

Q3 2

01

3

QQ growth actual

QQ growth estimate



Outline






Source: ICAEW / Grant Thornton Q4 2011 Business Confidence Monitor



Turnover growth expectations are up on the same quarter

a year ago…. Turnover, annual percentage change

-4

-2

0

2

4

6

8

Q3 2

00

6

Q1 2

00

7

Q3 2

00

7

Q1 2

00

8

Q3 2

00

8

Q1 2

00

9

Q3 2

00

9

Q1 2

01

0

Q3 2

01

0

Q1 2

01

1

Q3 2

01

1

Q1 2

01

2

Q3 2

01

2

Q1 2

01

3

Q3 2

01

3

… over last 12 months … expected next 12 months



… as are profit growth expectations despite no change in

reported annual growth compared with Q3 2012 Gross profits, annual percentage change

-4

-2

0

2

4

6

8

Q3 2

00

6

Q1 2

00

7

Q3 2

00

7

Q1 2

00

8

Q3 2

00

8

Q1 2

00

9

Q3 2

00

9

Q1 2

01

0

Q3 2

01

0

Q1 2

01

1

Q3 2

01

1

Q1 2

01

2

Q3 2

01

2

Q1 2

01

3

Q3 2

01

3




Domestic demand growth expectations pick up despite

ongoing squeeze on household finances Domestic sales, annual percentage change

-4

-2

0

2

4

6

8

Q4 2

00

7

Q1 2

00

8

Q2 2

00

8

Q3 2

00

8

Q4 2

00

8

Q1 2

00

9

Q2 2

00

9

Q3 2

00

9

Q4 2

00

9

Q1 2

01

0

Q2 2

01

0

Q3 2

01

0

Q4 2

01

0

Q1 2

01

1

Q2 2

01

1

Q3 2

01

1

Q4 2

01

1

Q1 2

01

2

Q2 2

01

2

Q3 2

01

2

Q4 2

01

2

Q1 2

01

3

Q2 2

01

3

Q3 2

01

3




Concerns that China’s economic slowdown could hit world

growth



Despite challenging global economic backdrop, businesses

believe export growth will pick up

-4

-2

0

2

4

6

8

Q3 2

00

6

Q1 2

00

7

Q3 2

00

7

Q1 2

00

8

Q3 2

00

8

Q1 2

00

9

Q3 2

00

9

Q1 2

01

0

Q3 2

01

0

Q1 2

01

1

Q3 2

01

1

Q1 2

01

2

Q3 2

01

2

Q1 2

01

3

Q3 2

01

3


Exports, annual percentage change



-4

-3

-2

-1

0

1

2

3

4

Q3 2

00

6

Q1 2

00

7

Q3 2

00

7

Q1 2

00

8

Q3 2

00

8

Q1 2

00

9

Q3 2

00

9

Q1 2

01

0

Q3 2

01

0

Q1 2

01

1

Q3 2

01

1

Q1 2

01

2

Q3 2

01

2

Q1 2

01

3

Q3 2

01

3


No sign of an investment-led recovery - capital investment

growth still expected to cool over the next 12 months Capital investment, annual percentage change



Share of businesses reporting customer demand to be a

greater challenge holds steady Share of businesses reporting customer demand as greater challenge

0%

10%

20%

30%

40%

50%

60%

Q4 2

00

7

Q1 2

00

8

Q2 2

00

8

Q3 2

00

8

Q4 2

00

8

Q1 2

00

9

Q2 2

00

9

Q3 2

00

9

Q4 2

00

9

Q1 2

01

0

Q2 2

01

0

Q3 2

01

0

Q4 2

01

0

Q1 2

01

1

Q2 2

01

1

Q3 2

01

1

Q4 2

01

1

Q1 2

01

2

Q2 2

01

2

Q3 2

01

2

Q4 2

01

2

Q1 2

01

3

Q2 2

01

3

Q3 2

01

3



Slight uptick in net share of businesses with raw material

stocks above normal Net share* of businesses** with stock levels above normal

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Q4 2

00

7

Q1 2

00

8

Q2 2

00

8

Q3 2

00

8

Q4 2

00

8

Q1 2

00

9

Q2 2

00

9

Q3 2

00

9

Q4 2

00

9

Q1 2

01

0

Q2 2

01

0

Q3 2

01

0

Q4 2

01

0

Q1 2

01

1

Q2 2

01

1

Q3 2

01

1

Q4 2

01

1

Q1 2

01

2

Q2 2

01

2

Q3 2

01

2

Q4 2

01

2

Q1 2

01

3

Q2 2

01

3

Q3 2

01

3

Raw materials Finished goods *Share of businesses with stock levels above normal minus

share of businesses with stock levels below normal ** Manufacturing, Construction,

Transport & Storage



Sharp decline in the share of businesses operating below

capacity

30%

35%

40%

45%

50%

55%

60%

65%

Q4 2

00

7

Q1 2

00

8

Q2 2

00

8

Q3 2

00

8

Q4 2

00

8

Q1 2

00

9

Q2 2

00

9

Q3 2

00

9

Q4 2

00

9

Q1 2

01

0

Q2 2

01

0

Q3 2

01

0

Q4 2

01

0

Q1 2

01

1

Q2 2

01

1

Q3 2

01

1

Q4 2

01

1

Q1 2

01

2

Q2 2

01

2

Q3 2

01

2

Q4 2

01

2

Q1 2

01

3

Q2 2

01

3

Q3 2

01

3

Below capacity At capacity



Outline








Reported price growth has declined slightly for two

consecutive quarters

-1

-0.5

0

0.5

1

1.5

2

2.5

Q3 2

00

6

Q1 2

00

7

Q3 2

00

7

Q1 2

00

8

Q3 2

00

8

Q1 2

00

9

Q3 2

00

9

Q1 2

01

0

Q3 2

01

0

Q1 2

01

1

Q3 2

01

1

Q1 2

01

2

Q3 2

01

2

Q1 2

01

3

Q3 2

01

3


Selling prices, annual % change



Input price inflation lower than a year ago and expected to

cool further

-1

0

1

2

3

4

5

Q3 2

00

6

Q1 2

00

7

Q3 2

00

7

Q1 2

00

8

Q3 2

00

8

Q1 2

00

9

Q3 2

00

9

Q1 2

01

0

Q3 2

01

0

Q1 2

01

1

Q3 2

01

1

Q1 2

01

2

Q3 2

01

2

Q1 2

01

3

Q3 2

01

3


Input prices, annual % change



Employment growth expected to pick up from current levels Employment, annual percentage change

-3

-2

-1

0

1

2

3

Q3 2

00

6

Q1 2

00

7

Q3 2

00

7

Q1 2

00

8

Q3 2

00

8

Q1 2

00

9

Q3 2

00

9

Q1 2

01

0

Q3 2

01

0

Q1 2

01

1

Q3 2

01

1

Q1 2

01

2

Q3 2

01

2

Q1 2

01

3

Q3 2

01

3




Employment growth picks up among large private

companies Employment, annual percentage change

-3

-2

-1

0

1

2

3

Q3 2

01

0

Q4 2

01

0

Q1 2

01

1

Q2 2

01

1

Q3 2

01

1

Q4 2

01

1

Q1 2

01

2

Q2 2

01

2

Q3 2

01

2

Q4 2

01

2

Q1 2

01

3

Q2 2

01

3

Q3 2

01

3

Exp

ec

ted

12 m

on

ths

fro

m Q

3 2

01

3

FTSE 350 Listed Large Private Companies SME Private Companies



Staff turnover remains more of an issue than in 2012 Net percentage balance of firms reporting factors to be a greater challenge to

business performance

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Q4 2

00

7

Q1 2

00

8

Q2 2

00

8

Q3 2

00

8

Q4 2

00

8

Q1 2

00

9

Q2 2

00

9

Q3 2

00

9

Q4 2

00

9

Q1 2

01

0

Q2 2

01

0

Q3 2

01

0

Q4 2

01

0

Q1 2

01

1

Q2 2

01

1

Q3 2

01

1

Q4 2

01

1

Q1 2

01

2

Q2 2

01

2

Q3 2

01

2

Q4 2

01

2

Q1 2

01

3

Q2 2

01

3

Q3 2

01

3

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



Expected pay growth has been trending up though remains

very weak Average total salary, annual percentage change

-2

-1

0

1

2

3

4

Q3 2

00

6

Q1 2

00

7

Q3 2

00

7

Q1 2

00

8

Q3 2

00

8

Q1 2

00

9

Q3 2

00

9

Q1 2

01

0

Q3 2

01

0

Q1 2

01

1

Q3 2

01

1

Q1 2

01

2

Q3 2

01

2

Q1 2

01

3

Q3 2

01

3




Outline








Trend of Business Confidence by Region

-10

-5

0

5

10

15

20

25

30

35

40UK AVERAGE London

South East (exclLondon) South West East of England East Midlands West Midlands

Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013

-10

-5

0

5

10

15

20

25

30

35

40UK AVERAGE North West

NorthernEngland Yorks & Humber England Scotland Wales



Trend of Business Confidence by Sector

-10

-5

0

5

10

15

20

25

30

35

40UK

ALLPRODUCTION

Energy, Water &Mining

Manufacturing& Engineering CONSTRUCTION

Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013

-10

-5

0

5

10

15

20

25

30

35

40

ALLSERVICES

Retail& Wholesale

Transport& Storage

Banking,Finance

& Insurance PropertyBusinessServices

IT &Communications



Construction sector confidence reaches a record

high ICAEW / Grant Thornton Business Confidence Index – construction sector

10.3

17.9

9.2

-4.4

13.4

-10.4

-3.8

8.7

15.1

-4

0.3

13.4 9.6

-0.8

-17.3

-24.2

-41.8

-54.2 -54.6

-31.7

4.1

8.9

24

14.1

7.6 6.3

-16.5

0 0.7

-6.8 -7.6

5.5

-8.1

-3.9

13.8

22.7

31.4

-60

-50

-40

-30

-20

-10

0

10

20

30

40

Q3 2

00

4

Q1 2

00

5

Q3 2

00

5

Q1 2

00

6

Q3 2

00

6

Q1 2

00

7

Q3 2

00

7

Q1 2

00

8

Q3 2

00

8

Q1 2

00

9

Q3 2

00

9

Q1 2

01

0

Q3 2

01

0

Q1 2

01

1

Q3 2

01

1

Q1 2

01

2

Q3 2

01

2

Q1 2

01

3

Q3 2

01

3



Recovery in construction sector confidence

suggests worst could be over for the sector ONS index of economic output, by sector, 2007 = 100

80

85

90

95

100

105

Q2 2

00

3

Q4 2

00

3

Q2 2

00

4

Q4 2

00

4

Q2 2

00

5

Q4 2

00

5

Q2 2

00

6

Q4 2

00

6

Q2 2

00

7

Q4 2

00

7

Q2 2

00

8

Q4 2

00

8

Q2 2

00

9

Q4 2

00

9

Q2 2

01

0

Q4 2

01

0

Q2 2

01

1

Q4 2

01

1

Q2 2

01

2

Q4 2

01

2

Q2 2

01

3

Production industries

Construction

Services



The services sector has seen faster growth than

construction and production in recent years ONS index of economic output, by sector, 2007 = 100

75

80

85

90

95

100

105

200

3 Q

2

200

3 Q

4

200

4 Q

2

200

4 Q

4

200

5 Q

2

200

5 Q

4

200

6 Q

2

200

6 Q

4

200

7 Q

2

200

7 Q

4

200

8 Q

2

200

8 Q

4

200

9 Q

2

200

9 Q

4

201

0 Q

2

201

0 Q

4

201

1 Q

2

201

1 Q

4

201

2 Q

2

201

2 Q

4

201

3 Q

2

Transport, Storage & Communication

Business services and Finance

Distribution & Accommodation and Food Service Activities



Profit growth – last 12 months

-2

-1

0

1

2

3

4

5UK

ALLPRODUCTION



Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013

-2

-1

0

1

2

3

4

5

ALLSERVICES

Retail& Wholesale

Transport& Storage

Banking,Finance


IT &Communications



Profit growth – next 12 months

0

1

2

3

4

5

6UK

ALLPRODUCTION



Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013

-2

-1

0

1

2

3

4

5

6

7

8

ALLSERVICES

Retail& Wholesale

Transport& Storage

Banking,Finance


IT &Communications



Capital investment growth – last 12 months

0

1

2

3

4

5UK

ALLPRODUCTION



Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013

-2

-1

0

1

2

3

4

5

ALLSERVICES

Retail& Wholesale

Transport& Storage

Banking,Finance


IT &Communications



Capital investment growth – next 12 months

0

1

2

3

4

5UK

ALLPRODUCTION



Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013

-2

-1

0

1

2

3

4

5

ALLSERVICES

Retail& Wholesale

Transport& Storage

Banking,Finance


IT &Communications



Export growth – last 12 months

-1

0

1

2

3

4

5

6

7UK

ALLPRODUCTION



Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013

-2

-1

0

1

2

3

4

5

ALLSERVICES

Retail& Wholesale

Transport& Storage

Banking,Finance


IT &Communications



Export growth – next 12 months

0

1

2

3

4

5

6UK

ALLPRODUCTION



Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013

-2

-1

0

1

2

3

4

5

ALLSERVICES

Retail& Wholesale

Transport& Storage

Banking,Finance


IT &Communications



Employee growth – last 12 months

-0.5 0.0 0.5 1.0 1.5 2.0

Banking, Finance & Insurance

Manufacturing & Engineering

Construction

Retail & Wholesale

All Production Industries

Property

UK National Average

All Service Industries

IT & Communications

Transport & Storage

Business Services

Energy, Water & Mining



Employee growth – next 12 months

0.0 0.5 1.0 1.5 2.0 2.5

Energy, Water & Mining

Retail & Wholesale

All Production Industries

Banking, Finance & Insurance

Manufacturing & Engineering

Property

All Service Industries

UK National Average

Transport & Storage

Business Services

IT & Communications

Construction



Trend of Business Confidence by Company

Type

-10

0

10

20

30

40

UK ConfidenceIndex ALL UK LISTED FTSE 350

ALL PRIVATECOMPANIES

Private CompaniesLarge (250+ staff)

Private CompaniesSME (<250 staff)

Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013



Conclusions • Business confidence rose again in Q3 2013, suggesting that the

economic recovery is continuing to gain momentum.

• The Confidence Index points to economic growth of 1.0% in Q3 2013,

the fastest growth since Q2 2010.

• Provided the economy does not contract in Q4 2013, GDP this year

should grow at its fastest rate since 2010.

• Despite pick-up in confidence, businesses are still reluctant to expand

capital investment levels – no uptick in capital spending growth

expectations.

• There are signs that employee pay growth is picking up, though

growth levels remain extremely weak and below consumer price

inflation.

• Construction sector confidence has rebounded strongly – an

encouraging sign that the worst may be over for a sector hard hit by

the recent economic downturn

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ICAEW/Grant Thornton UK Business Confidence Monitor Q3 2013