ICAEW/Grant Thornton Q3 2013 Business Confidence Monitor Reaches Highest Level Since 2010

BUSINESS WITH CONFIDENCE icaew.com
29 July 2013
Contact: Caroline Florence
Q3 2013 ICAEW / Grant Thornton Business
Confidence Monitor results

Copyright © ICAEW 2013. 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 2013. All rights reserved. ICAEW / Grant Thornton Q3 2013 Business Confidence MonitorSlide number 3
Business confidence reaches its highest level
since Q2 2010
ICAEW / Grant Thornton Business Confidence Index
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
-60
-50
-40
-30
-20
-10
0
10
20
30
40
Q32006
Q12007
Q32007
Q12008
Q32008
Q12009
Q32009
Q12010
Q32010
Q12011
Q32011
Q12012
Q32012
Q12013
Q32013
UK Average

Business confidence has increased now for four
consecutive quarters
-20
-15
-10
-5
0
5
10
15
20
25
30
35
Q32006
Q12007
Q32007
Q12008
Q32008
Q12009
Q32009
Q12010
Q32010
Q12011
Q32011
Q12012
Q32012
Q12013
Q32013
Quarterly change to Confidence Index

Confidence has risen sharply in recent weeks
-20
-18
-16
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
32
34
36
38
40
THREE WEEKS BEGINNING ……..
UK BCM CI TREND - 3 WEEK ROLLED
(Each point based on c.230)
Where the line passes thru 4 vertical
grid boxes the change is significant.

Economy expected to grow by 1.0% in Q3 – this would be the
fastest growth since Q2 2010
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%
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
QQ growth actual
QQ growth estimate

Turnover growth expectations are up on the same quarter
a year ago….
Turnover, annual percentage change
-4
-2
0
2
4
6
8
Q32006
Q12007
Q32007
Q12008
Q32008
Q12009
Q32009
Q12010
Q32010
Q12011
Q32011
Q12012
Q32012
Q12013
Q32013
… over last 12 months … expected next 12 months

… as are profit growth expectations despite no change in
reported annual growth compared with Q3 2012
Gross profits, annual percentage change
-4
-2
0
2
4
6
8
Q32006
Q12007
Q32007
Q12008
Q32008
Q12009
Q32009
Q12010
Q32010
Q12011
Q32011
Q12012
Q32012
Q12013
Q32013

Domestic demand growth expectations pick up despite
ongoing squeeze on household finances
Domestic sales, annual percentage change
-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

Concerns that China’s economic slowdown could hit world
growth

Despite challenging global economic backdrop, businesses
believe export growth will pick up
-4
-2
0
2
4
6
8
Q32006
Q12007
Q32007
Q12008
Q32008
Q12009
Q32009
Q12010
Q32010
Q12011
Q32011
Q12012
Q32012
Q12013
Q32013
Exports, annual percentage change

-4
-3
-2
-1
0
1
2
3
4
Q32006
Q12007
Q32007
Q12008
Q32008
Q12009
Q32009
Q12010
Q32010
Q12011
Q32011
Q12012
Q32012
Q12013
Q32013
No sign of an investment-led recovery - capital investment
growth still expected to cool over the next 12 months
Capital investment, annual percentage change

Share of businesses reporting customer demand to be a
greater challenge holds steady
Share of businesses reporting customer demand as greater challenge
0%
10%
20%
30%
40%
50%
60%
Q42007
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
Q12010
Q22010
Q32010
Q42010
Q12011
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Q42012
Q12013
Q22013
Q32013

Slight uptick in net share of businesses with raw material
stocks above normal
Net share* of businesses** with stock levels above normal
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
Q42007
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
Q12010
Q22010
Q32010
Q42010
Q12011
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Q42012
Q12013
Q22013
Q32013
Raw materials Finished goods *Share of businesses with stock levels above normal minus
share of businesses with stock levels below normal
** Manufacturing, Construction,
Transport & Storage

Sharp decline in the share of businesses operating 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
Below capacity At capacity

Outline

Reported price growth has declined slightly for two
consecutive quarters
-1
-0.5
0
0.5
1
1.5
2
2.5
Q32006
Q12007
Q32007
Q12008
Q32008
Q12009
Q32009
Q12010
Q32010
Q12011
Q32011
Q12012
Q32012
Q12013
Q32013
Selling prices, annual % change

Input price inflation lower than a year ago and expected to
cool further
-1
0
1
2
3
4
5
Q32006
Q12007
Q32007
Q12008
Q32008
Q12009
Q32009
Q12010
Q32010
Q12011
Q32011
Q12012
Q32012
Q12013
Q32013
Input prices, annual % change

Employment growth expected to pick up from current levels
Employment, annual percentage change
-3
-2
-1
0
1
2
3
Q32006
Q12007
Q32007
Q12008
Q32008
Q12009
Q32009
Q12010
Q32010
Q12011
Q32011
Q12012
Q32012
Q12013
Q32013

Employment growth picks up among large private
companies
Employment, annual percentage change
-3
-2
-1
0
1
2
3
Q32010
Q42010
Q12011
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Q42012
Q12013
Q22013
Q32013
Expected
12months
fromQ32013
FTSE 350 Listed Large Private Companies SME Private Companies

Staff turnover remains more of an issue than in 2012
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
Availability of management skills Availability of non-management skills Staff turnover

Expected pay growth has been trending up though remains
very weak
Average total salary, annual percentage change
-2
-1
0
1
2
3
4
Q32006
Q12007
Q32007
Q12008
Q32008
Q12009
Q32009
Q12010
Q32010
Q12011
Q32011
Q12012
Q32012
Q12013
Q32013

Outline

Trend of Business Confidence by Region
-10
-5
0
5
10
15
20
25
30
35
40
UK AVERAGE London
South East (excl
London) South West East of England East Midlands West Midlands
Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013
-10
-5
0
5
10
15
20
25
30
35
40
UK AVERAGE North West
Northern
England Yorks & Humber England Scotland Wales

Trend of Business Confidence by Sector
-10
-5
0
5
10
15
20
25
30
35
40
UK
ALL
PRODUCTION
Energy, Water &
Mining
Manufacturing
& Engineering CONSTRUCTION
Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013
-10
-5
0
5
10
15
20
25
30
35
40
ALL
SERVICES
Retail
& Wholesale
Transport
& Storage
Banking,
Finance
& Insurance Property
Business
Services
IT &
Communications

Construction sector confidence reaches a record
high
ICAEW / Grant Thornton Business Confidence Index – construction sector
10.3
17.9
9.2
-4.4
13.4
-10.4
-3.8
8.7
15.1
-4
0.3
13.4
9.6
-0.8
-17.3
-24.2
-41.8
-54.2-54.6
-31.7
4.1
8.9
24
14.1
7.6 6.3
-16.5
0 0.7
-6.8-7.6
5.5
-8.1
-3.9
13.8
22.7
31.4
-60
-50
-40
-30
-20
-10
0
10
20
30
40
Q32004
Q12005
Q32005
Q12006
Q32006
Q12007
Q32007
Q12008
Q32008
Q12009
Q32009
Q12010
Q32010
Q12011
Q32011
Q12012
Q32012
Q12013
Q32013

Recovery in construction sector confidence
suggests worst could be over for the sector
ONS index of economic output, by sector, 2007 = 100
80
85
90
95
100
105
Q22003
Q42003
Q22004
Q42004
Q22005
Q42005
Q22006
Q42006
Q22007
Q42007
Q22008
Q42008
Q22009
Q42009
Q22010
Q42010
Q22011
Q42011
Q22012
Q42012
Q22013
Production industries
Construction
Services

The services sector has seen faster growth than
construction and production in recent years
ONS index of economic output, by sector, 2007 = 100
75
80
85
90
95
100
105
2003Q2
2003Q4
2004Q2
2004Q4
2005Q2
2005Q4
2006Q2
2006Q4
2007Q2
2007Q4
2008Q2
2008Q4
2009Q2
2009Q4
2010Q2
2010Q4
2011Q2
2011Q4
2012Q2
2012Q4
2013Q2
Transport, Storage & Communication
Business services and Finance
Distribution & Accommodation and Food Service Activities

Profit growth – last 12 months
-2
-1
0
1
2
3
4
5
UK
ALL
PRODUCTION
Energy, Water &
Mining
Manufacturing
Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013
-2
-1
0
1
2
3
4
5
ALL
SERVICES
Retail
& Wholesale
Transport
& Storage
Banking,
Finance
Business
Services
IT &
Communications

Profit growth – next 12 months
0
1
2
3
4
5
6
UK
ALL
PRODUCTION
Energy, Water &
Mining
Manufacturing
Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013
-2
-1
0
1
2
3
4
5
6
7
8
ALL
SERVICES
Retail
& Wholesale
Transport
& Storage
Banking,
Finance
Business
Services
IT &
Communications

Capital investment growth – last 12 months
0
1
2
3
4
5
UK
ALL
PRODUCTION
Energy, Water &
Mining
Manufacturing
Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013
-2
-1
0
1
2
3
4
5
ALL
SERVICES
Retail
& Wholesale
Transport
& Storage
Banking,
Finance
Business
Services
IT &
Communications

Capital investment growth – next 12 months
0
1
2
3
4
5
UK
ALL
PRODUCTION
Energy, Water &
Mining
Manufacturing
Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013
-2
-1
0
1
2
3
4
5
ALL
SERVICES
Retail
& Wholesale
Transport
& Storage
Banking,
Finance
Business
Services
IT &
Communications

Export growth – last 12 months
-1
0
1
2
3
4
5
6
7
UK
ALL
PRODUCTION
Energy, Water &
Mining
Manufacturing
Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013
-2
-1
0
1
2
3
4
5
ALL
SERVICES
Retail
& Wholesale
Transport
& Storage
Banking,
Finance
Business
Services
IT &
Communications

Export growth – next 12 months
0
1
2
3
4
5
6
UK
ALL
PRODUCTION
Energy, Water &
Mining
Manufacturing
Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013
-2
-1
0
1
2
3
4
5
ALL
SERVICES
Retail
& Wholesale
Transport
& Storage
Banking,
Finance
Business
Services
IT &
Communications

Employee growth – last 12 months
-0.5 0.0 0.5 1.0 1.5 2.0
Banking, Finance & Insurance
Manufacturing & Engineering
Construction
Retail & Wholesale
All Production Industries
Property
UK National Average
All Service Industries
IT & Communications
Transport & Storage
Business Services
Energy, Water & Mining

Employee growth – next 12 months
0.0 0.5 1.0 1.5 2.0 2.5
Energy, Water & Mining
Retail & Wholesale
All Production Industries
Banking, Finance & Insurance
Manufacturing & Engineering
Property
All Service Industries
UK National Average
Transport & Storage
Business Services
IT & Communications
Construction

Trend of Business Confidence by Company
Type
-10
0
10
20
30
40
UK Confidence
Index ALL UK LISTED FTSE 350
ALL PRIVATE
COMPANIES
Private Companies
Large (250+ staff)
Private Companies
SME (<250 staff)
Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013

Copyright © ICAEW 2013. All rights reserved.
Conclusions
• Business confidence rose again in Q3 2013, suggesting that the
economic recovery is continuing to gain momentum.
• The Confidence Index points to economic growth of 1.0% in Q3 2013,
the fastest growth since Q2 2010.
• Provided the economy does not contract in Q4 2013, GDP this year
should grow at its fastest rate since 2010.
• Despite pick-up in confidence, businesses are still reluctant to expand
capital investment levels – no uptick in capital spending growth
expectations.
• There are signs that employee pay growth is picking up, though
growth levels remain extremely weak and below consumer price
inflation.
• Construction sector confidence has rebounded strongly – an
encouraging sign that the worst may be over for a sector hard hit by
the recent economic downturn

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