Business Set to Slash Capital Investment

British businesses plan to slash capital investment and slow recruitment in response to growing concerns about the economy, new research reveals.

The findings were reported in the latest ICAEW/Grant Thornton UK Business Confidence Monitor (BCM), which points to the likelihood of a double-dip recession.

But despite the relative gloom of those surveyed, SMEs are deemed the most likely section of UK plc to create new jobs in 2012.

The BCM confidence index has been a close predictor of GDP growth in the eight years of its existence. Recent GDP figures show a contraction of -0.2% for Q4 2011 and, using the index, another contraction of -0.2% is predicted for Q1 2012, suggesting that the UK economy is again in recession. The flattening out of confidence in this quarter does however indicate that this second recession will not be as deep.

Michael Izza, chief executive of ICAEW, said: ‘This survey shows that businesses are responding to concerns about the economic outlook by cutting back on investment in equipment and people. This is at a time when government desperately needs businesses to be growing. At the moment, it is hard to see where this growth will come from and the Chancellor needs to use the forthcoming budget to give businesses reasons to be more confident about the future – and unlock potential investments.’

Nearly a fifth of businesses (19%) reported above normal stock levels probably due to a lack of customer demand and over half of businesses are operating below capacity.

Salary expectations for 2012 are also depressed with businesses predicting modest increases of up to 2%.

Grant Thornton CEO Scott Barnes, said: ‘The key performance indicators in the BCM remain weak and the concern for business is that domestic and international demand will remain low as unemployment continues to rise in 2012 and wages remain static. However these figures are not as bad as anticipated and many of the companies surveyed are predicting at least some growth. They need greater certainty in domestic and global markets before they opt for a more expansive path.’