Business confidence plummets after Brexit, says ICAEW

Business confidence significantly fell immediately after Brexit following a steady two-year downward trend, but is showing signs of recovery, according to an industry body.

The business confidence index from the Institute of Chartered Accountants for England and Wales (ICAEW) fell 11 points to -10.2 in the third quarter of the year.

The survey of 1,000 chartered accountants found that the index fell drastically after the EU referendum on 23 June, as companies said they were less confident about their future economic prospects.

For the period between 24 June to 20 July the index fell to -27.7 compared to -0.7 from 27 April to 23 June.

However the index had "crept up" since the referendum as businesses have taken stock from the country’s decision to leave the EU.

ICAEW director of business Stephen Ibbotson said: “Businesses have reacted however as you would expect them to. Time will help rebuild confidence as they adapt and understand the environment, bearing in mind that the UK will still be in Europe for at least two years."

Business confidence in the construction, property and transport sectors has plummeted in the last three months, while manufacturing saw a small fall.

Although these sectors had already experienced slow growth in the last four years and have strategies in place to deal with the decline of demand and investment.

In the third quarter, ICAEW also found that gross domestic product is predicted to be positive for the UK at 0.1%.

ICAEW expects employment growth to slow in the next 12 months and expectations for low salaries increased to 2% from 1.2% before the referendum, reflecting low growth.

Ibbotson said to mitigate plummeting business confidence post-Brexit decisions will need to be made swiftly by the government.

“Encouraging businesses to invest as well as explore new markets has to be the immediate priority for the government whilst it develops its vision for the UK economy once we have left the EU."

Forecasts for growth and house prices are expected to fall as inflation and unemployment is anticipated to increase.

On Thursday the Bank of England (BoE) is expected to slash interest rates, for the first time in seven years, to 0.25% from 0.5% in a bid to encourage growth, or increase quantitative easing.

The Governor of the BoE, Mark Carney, said in May that Brexit could lead the country to a recession, but economists said in the medium term the central bank’s objective of a materially low path for growth and a higher path for inflation could negatively affect the economy.