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The latest ICAEW/Orange UK Business Confidence Monitor (BCM) shows that while
forecasts for GDP and profit growth have increased this quarter, almost half of
the finance professionals surveyed are worried about the growing burdens of tax
and regulation, leading them to invest less in the economy and so endanger long
term prospects for economic growth.
Despite rising profit forecasts for the fourth quarter in a row (6.3%), firms in
the UK predict that they will increase their capital investment budgets at a
lower rate than they did over the past year, from 3.0% last year, down to 2.2%
per cent over the coming 12 months, suggesting that businesses are not as
confident about investing capital in the UK.
Eric Anstee, Chief Executive of the ICAEW, explained: “While the BCM shows the
economy is moving in the right direction, the longer term economic outlook looks
fragile.
"A lack of business investment could play an important role in weakening
economic growth further down the road, especially if world economic imbalances
start to unravel.
"I would urge the Government to revisit its taxation and regulatory regimes to
renew confidence among businesses of all sizes which, despite higher profit
growth expectations and rising confidence, remain nervous of further
investment.”
Nearly half of the 1,027 finance professionals surveyed believe that the tax
burden is now worse than a year ago, up 10% over six months.
In addition, over two fifths of respondents say government support for
businesses has deteriorated in comparison to the past 12 months. The incremental
improvements in the proportion of respondents who think government regulation is
having a negative effect on their business has come to a halt, remaining steady
at 62%.
Overall, confidence has risen from +4.4 three months ago, to +5.9 this quarter,
suggesting that the economy is continuing to grow at around trend.
The survey suggests year-on-year growth will rise to 2.5%, the highest growth
rate since the end of 2004. But whilst three months ago a revival in consumer
spending pushed the index up, this quarter the consumer has failed to deliver,
leaving a turnaround in manufacturing and construction to improve the economic
outlook.
Despite the continued confidence in economic growth this quarter, the BCM also
points to some of the longer term risks ahead.
An uncertain consumer, higher household bills, rising unemployment and a
stabilising housing market could cause the economy to falter later in the year
and into 2007.
"Inflationary pressures from oil prices at record highs are likely to prevent
the Bank of England from cutting interest rates this year.
Mr Anstee further warned: “The Chancellor produced a neutral budget on 22 March
2006 claiming that he will raise expenditure as much as taxes. Our view is that
he is in line to meet his targets this financial year, but once again, because
he continues to spend a lot, he risks underestimating how much he needs to
borrow next financial year.
"With less and less capacity to borrow, raising taxes may appear an easy option.
UK businesses will take note and invest less.”
Source:
RedAlert
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