According to a survey of finance chiefs, UK business confidence is at an all-time low. The survey, carried out by Deloitte, asked the finance chiefs of the largest UK firms.
This is the largest fall in confidence on record in the first quarter. The poll found that there were reports of high uncertainly and a deep downturn is expected.
What is business confidence?
We see the term ‘confidence’ a lot when looking at business news. Whether it be consumer or business, the term confidence is often used. But what does business confidence actually mean?
Business confidence essentially tells us how businesses are feeling about current economic conditions. It also measures how positive or negative businesses are feeling about the next three months.
This is done by carrying out regular surveys and putting them into the Business Confidence Index (BCI). The index is created by asking businesses about progress in the following;
- Stocks of finished goods
These are measured in numbers, over 100 suggests confidence, and below 100 suggest nervousness.
The Business Confidence Index has been published since 1997 and is considered a key indicator in understanding the overall health of the economy.
What does the survey say about business confidence?
Now we know what business confidence means, what does the new survey by Deloitte say about it?
The answer is pretty bleak.
The survey is carried out quarterly, and this is the biggest drop in confidence since it began in 2007. That’s right, 2007, meaning that confidence is lower than after the global financial crisis of 2008. It is also a stark contrast to the last quarter of 2019. The survey carried out towards the end of the year showed record levels of business confidence.
Nine out of ten finance directors believe that there is a high or very high level of uncertainty facing their business of the coming months. Almost all surveyed expect corporate revenues to fall over the next 12 months. 98% sad they are expecting UK businesses to reduce capital spending during 2020 with the same percentage predicting a slowdown in hiring.
As we said, it’s a pretty bleak picture.
What does the UK economic outlook look like?
Again, it’s quite bleak.
Out of those surveyed, over half are forecasting a deep and prolonged downturn in Britain lasting at least until the end of 2020. The Office for Budget Responsibility, the government’s independent economic forecaster, predicted that the economy could shrink by 13% this year.
As a result, 76% of the companies surveyed said reducing costs was a strong priority. Out of those surveyed, 59% were using or planned to use the government furlough scheme, of which the government pays 80% of wages. 30% of companies have said they are using or are planning to use the Covid Corporate Finance Facility (CCFF). 52% have reduced output or shut down factories.
Outside of the survey, official figures have shown that a quarter of businesses of all sizes have reported their sales have more than halved due to the lockdown.
What is the Covid Corporate Finance Facility?
The CCFF is aimed at large companies with an investment-grade credit rating or similar before the crisis.
The Bank of England will buy short-term debt from the company if they are affected by a funding squeeze. So far, the Bank of England has lent £15.9 billion under this scheme.
Is there any good news?
Yes, there is some good news.
The good news is that this economic downturn is not expected to last for long. As the lockdown is eased, demand is set to increase and sectors are set to recover. While recovery is not expected to be instant, it is thought that revenues will not return to pre-crisis levels until early next year.
Some businesses are also seeing this as an opportunity to rethink the future of work. According to Richard Houston of Deloitte, “almost all finance leaders believe that flexible working will gain ground in the wake of this crisis”. Therefore, we could see the future of work change dramatically as we return to the ‘new normal’.