The City is bracing itself for a tough 2016, with data out today showing that business confidence has taken a knock and finance chiefs are approaching the new year with caution.
Lloyds Bank’s business confidence index – a gauge of expected sales, orders and profits – declined to a score of 38 per cent this month from 43 per cent in July and January 2015.
The 1,500 surveyed firms are more concerned about weak economic growth abroad than they were six months ago – fewer firms expect exports to grow, with pessimism rising over every major export market. The steepest drop in export market optimism was in Europe, the biggest foreign buyer of UK goods.
The percentage of firms that said conditions in the UK were the main threat to their business rose to 31 per cent from 29 per cent six months ago.
“Business confidence has slipped back slightly as companies see slowing demand as a threat to their business in 2016, both at home and abroad,” said Tim Hinton, a managing director at Lloyds Bank.
“Global economic conditions are causing concern in the short term, with sterling’s strength against the euro causing issues for exporters.”
The survey also found that 52 per cent of firms are operating at maximum capacity, the highest in the survey’s history. Lloyds Bank senior economist Hann-Ju Ho said: “While this is not matched by investment intentions it could put upward pressure on inflation through 2016 as the extent of overall slack in the economy continues to diminish.”
Nevertheless, the confidence index remains above its long-term average of 24 per cent.
Meanwhile, Deloitte’s most recent chief financial officer (CFO) survey has found that finance chiefs’ confidence has fallen. Cost reduction ranked as the top priority, with 44 per cent citing this as a strong priority, up from 34 per cent three months ago.
Expansion has also fallen out of favour, with 19 per cent saying acquisitions are a strong priority, down from 22 per cent, and 17 per cent saying that raising capital expenditure was of great importance, down from 19 per cent.
“The surge in business confidence that started in late 2012 went into reverse in 2015,” said Ian Stewart, Deloitte’s chief economist. “CFOs are reacting to uncertainties abroad by cutting back on risk taking and sharpening their focus on cost reduction.”