Grant Thornton/ICAEW Business Confidence Monitor Q2 2014

BUSINESS WITH CONFIDENCE icaew.com
28 April 2014
Contact: Caroline Florence
Q2 2014 ICAEW / Grant Thornton Business
Confidence Monitor results

Copyright © ICAEW 2014. 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 2014. All rights reserved. ICAEW / Grant Thornton Q2 2014 Business Confidence MonitorSlide number 3
Confidence holds steady at record-high level
ICAEW / Grant Thornton UK Business Confidence Index
1.4
-1.3
-5.4
5 5.5
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
31.7
37.2 37.3
-60
-40
-20
0
20
40
60
Q22005
Q42005
Q22006
Q42006
Q22007
Q42007
Q22008
Q42008
Q22009
Q42009
Q22010
Q42010
Q22011
Q42011
Q22012
Q42012
Q22013
Q42013
Q22014

Confidence starting to level off after sustained
period of rises
-20
-15
-10
-5
0
5
10
15
20
25
30
35
Q22005
Q42005
Q22006
Q42006
Q22007
Q42007
Q22008
Q42008
Q22009
Q42009
Q22010
Q42010
Q22011
Q42011
Q22012
Q42012
Q22013
Q42013
Q22014
Quarterly change to Confidence Index

After dipping in March confidence has picked up
again on the latest data
ICAEW / Grant Thornton Business Confidence Index – 3 week rolling trend
33.2
34.5
30
29.3
26
27.927.7
30.4
31.531.1
36
36.8
38.3
36.9
37.7
38.3
33.4
30.3
31.2
36
37.9
39.4
32.9
36.9
38.6
42.5
39.1
40.5
39.539.3
4039.739.9
36.4
33.1
31.931.5
36.6
37.3
20
25
30
35
40
45
15JUL13
22JUL13
29JUL13
05AUG13
12AUG13
19AUG13
26AUG13
02SEP13
09SEP13
16SEP13
23SEP13
30SEP13
07OCT13
14OCT13
21OCT13
28OCT13
04NOV13
11NOV13
18NOV13
25NOV13
02DEC13
09DEC13
16DEC13
23DEC13
30DEC13
06JAN14
13JAN14
20JAN14
27JAN14
03FEB14
10FEB14
17FEB14
24FEB14
03MAR14
10MAR14
17MAR14
24MAR14
31MAR14
07APR14
3 weeks beginning…
UK Average

Economic growth forecast to accelerate to 1.2% in Q2
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%
Q22005
Q32005
Q42005
Q12006
Q22006
Q32006
Q42006
Q12007
Q22007
Q32007
Q42007
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
Q12010
Q22010
Q32010
Q42010
Q12011
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Q42012
Q12013
Q22013
Q32013
Q42013
Q12014
Q22014
QQ growth actual
QQ growth estimate

Outline
• Confidence index top lines
Source: ICAEW / Grant Thornton Q4 2011 Business Confidence Monitor

Turnover growth and expectations continue to accelerate
Turnover, annual percentage change
-4
-2
0
2
4
6
8
Q22007
Q42007
Q22008
Q42008
Q22009
Q42009
Q22010
Q42010
Q22011
Q42011
Q22012
Q42012
Q22013
Q42013
Q22014
… over last 12 months … expected next 12 months

Reported and expected profit growth have also increased
Gross profits, annual percentage change
-4
-2
0
2
4
6
8
Q22007
Q42007
Q22008
Q42008
Q22009
Q42009
Q22010
Q42010
Q22011
Q42011
Q22012
Q42012
Q22013
Q42013
Q22014

Domestic sales and export growth pick up
Domestic sales and exports, percentage change versus 12 months ago
-4
-2
0
2
4
6
8
Q42007
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
Q12010
Q22010
Q32010
Q42010
Q12011
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Q42012
Q12013
Q22013
Q32013
Q42013
Q12014
Q22014
Domestic sales Exports

Looking ahead domestic sales expected to drive expansion
Domestic sales and exports, expected growth for next 12 months
-4
-2
0
2
4
6
8
Q42007
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
Q12010
Q22010
Q32010
Q42010
Q12011
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Q42012
Q12013
Q22013
Q32013
Q42013
Q12014
Q22014
Domestic sales Exports

… which could prove problematic in terms of
the UK’s trade position
UK trade balance, £ millions
-5,000
-4,000
-3,000
-2,000
-1,000
0
1,000
Feb-04
Aug-04
Feb-05
Aug-05
Feb-06
Aug-06
Feb-07
Aug-07
Feb-08
Aug-08
Feb-09
Aug-09
Feb-10
Aug-10
Feb-11
Aug-11
Feb-12
Aug-12
Feb-13
Aug-13
Feb-14

Non-exporters are more confident than exporters
Share of businesses more confident in economic prospects, exporters versus non-
exporters, Q2 2014
64%
73%
58%
60%
62%
64%
66%
68%
70%
72%
74%
Exporters Non-exporters

-4
-3
-2
-1
0
1
2
3
4
Q22007
Q42007
Q22008
Q42008
Q22009
Q42009
Q22010
Q42010
Q22011
Q42011
Q22012
Q42012
Q22013
Q42013
Q22014
Capital investment growth holds steady
Capital investment, annual percentage change

Significant share of businesses still operating below capacity
Share of businesses operating at and below capacity
30%
35%
40%
45%
50%
55%
60%
65%
Q42007
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
Q12010
Q22010
Q32010
Q42010
Q12011
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Q42012
Q12013
Q22013
Q32013
Q42013
Q12014
Q22014
Below capacity At capacity

Outline

Employment growth expectations accelerate
Employee numbers, annual percentage change
-3
-2
-1
0
1
2
3
Q42007
Q22008
Q42008
Q22009
Q42009
Q22010
Q42010
Q22011
Q42011
Q22012
Q42012
Q22013
Q42013
Q22014

Expectations are for growth in private sector employee
numbers of 450,000 in next year, taking the total into new
all-time highs
Number of employees in the UK, thousands
24,000
24,200
24,400
24,600
24,800
25,000
25,200
25,400
25,600
25,800
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14

SMEs expect solid job creation over the next 12 months
Employee numbers, annual percentage change
-3
-2
-1
0
1
2
3
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Q42012
Q12013
Q22013
Q32013
Q42013
Q12014
Q22014
Expected
12months
fromQ22014
FTSE 350 Listed Large Private Companies SME Private Companies

Salary growth starting to match inflation…
Average total salary, annual percentage change
-2
-1
0
1
2
3
4
5
6
Q22007
Q42007
Q22008
Q42008
Q22009
Q42009
Q22010
Q42010
Q22011
Q42011
Q22012
Q42012
Q22013
Q42013
Q22014
… over last 12 months … expected next 12 months Consumer price index (CPI) inflation

So “cost of living crisis” becoming less of an issue ahead of
the next election
Real total salaries, annual percentage change*
-5
-4
-3
-2
-1
0
1
2
Q12007
Q22007
Q32007
Q42007
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
Q12010
Q22010
Q32010
Q42010
Q12011
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Q42012
Q12013
Q22013
Q32013
Q42013
Q12014
* Total salary growth reported in the BCM minus consumer price index (CPI) inflation
** Expected salary growth for next 12 months minus Office for Budget
Responsibility’s CPI forecast for 2014 as a whole
Next12months**

Staff turnover becoming more of an issue as
unemployment falls
Net percentage balance of firms reporting factors to be a greater challenge to
business performance
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Q42007
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
Q12010
Q22010
Q32010
Q42010
Q12011
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Q42012
Q12013
Q22013
Q32013
Q42013
Q12014
Q22014
Availability of management skills Availability of non-management skills Staff turnover

Outline

Trend of Business Confidence by Region
0
5
10
15
20
25
30
35
40
45
50
55
UK AVERAGE London
South East (excl
London) South West East of England East Midlands West Midlands
Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014
0
5
10
15
20
25
30
35
40
45
50
55
UK AVERAGE North West Northern England Yorks & Humber England Wales

Trend of Business Confidence by Sector
0
5
10
15
20
25
30
35
40
45
50
55
UK
ALL
PRODUCTION
Energy, Water &
Mining
Manufacturing
& Engineering CONSTRUCTION
Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014
0
5
10
15
20
25
30
35
40
45
50
55
ALL
SERVICES
Retail
& Wholesale
Transport
& Storage
Banking,
Finance
& Insurance Property
Business
Services
IT &
Communications

Confidence rises in Production industries
ICAEW / Grant Thornton Business Confidence Index, by sector
-60
-40
-20
0
20
40
60
Q42007
Q22008
Q42008
Q22009
Q42009
Q22010
Q42010
Q22011
Q42011
Q22012
Q42012
Q22013
Q42013
Q22014
All Production industries Construction All Service industries

Property sector confidence at a record high
ICAEW / Grant Thornton Business Confidence Index
-60
-40
-20
0
20
40
60
Q22004
Q42004
Q22005
Q42005
Q22006
Q42006
Q22007
Q42007
Q22008
Q42008
Q22009
Q42009
Q22010
Q42010
Q22011
Q42011
Q22012
Q42012
Q22013
Q42013
Q22014

Construction and Property sectors supported by
housing market revival
ONS new private housing construction output (GB), year-on-year % change
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14

Big differences in spare capacity by sector
Share of businesses operating below capacity, Q2 2014, %
0% 10% 20% 30% 40% 50% 60% 70%
Banking, Finance & Insurance
IT & Communications
Energy, Water & Mining
Property
Construction
All Service Industries
Transport & Storage
Retail & Wholesale
Business Services
All Production Industries
Manufacturing & Engineering

Property sector reports strong capital investment
growth
Capital investments growth, Q2 2014, %
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5
Business Services
Retail & Wholesale
Transport & Storage
Construction
IT & Communications
Property
Expected next 12 months Last 12 months

Tech industries lead growth in R&D budgets
R&D budget growth, Q2 2014, %
-0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5
Property
Construction
Business Services
Retail & Wholesale
Transport & Storage
IT & Communica tions
Expected next 12 months Last 12 months

Relatively high share of construction businesses report
management skills to be a greater challenge
Net % of businesses reporting availability of skills to be a greater challenge
than a year ago, Q2 2014
0% 5% 10% 15% 20% 25% 30%
Business Services
Property
Retail & Wholesale
Transport & Storage
IT & Communica tions
Construction
Availability of non-management skills Availability of management skills

Employee growth – last 12 months
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Transport & Storage
Retail & Wholesale
UK National Average
Property
Construction
Business Services
IT & Communications

Employee growth – next 12 months
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Transport & Storage
Retail & Wholesale
UK National Average
Property
Business Services
IT & Communications
Construction

Trend of Business Confidence by Company
Type
0
5
10
15
20
25
30
35
40
45
UK Confidence
Index ALL UK LISTED FTSE 350
ALL PRIVATE
COMPANIES
Private Companies
Large (250+ staff)
Private Companies
SME (<250 staff)
Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014

Conclusions
• Business confidence holds steady in Q2 2014 after six consecutive
quarters of rising confidence.
• Economy forecast to expand by 1.2% in Q2 2014, meaning that GDP will
finally exceed its pre-financial crisis peak in the second quarter.
• Reported turnover and profit growth continue to pick up and businesses
expect an acceleration over the next 12 months.
• Businesses expect domestic sales to be the key driver of growth going
forward, rather than exports. Exporting businesses are less confident than
non-exporting businesses.
• Staff headcount growth is expected to accelerate, pushing employment
levels further into record highs.
• Total salary growth is in line with inflation on the latest data, suggesting
the cost of living crisis is drawing to a close.
• Confidence is highest in the Property, Construction and IT &
Communications sectors.

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Grant Thornton/ICAEW Business Confidence Monitor Q2 2014

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