New government inherits confident business community
THE new Conservative government has inherited a confident business community but underlying fragility remains a cause for concern, according to a new study.
The latest Business Trends Report by accountants and business advisers BDO in the West Midlands, which predicts business growth six months ahead, points to strong growth, which the firm said suggested confidence among businesses in the region.
It said this suggested that businesses had been unruffled by Thursday’s election and were resilient in the face of Eurozone uncertainty.
The report also suggests that there may be good news to come, with BDO’s Output Index rising to 104.3 this month from 103.7, indicating that growth could speed up in the latter half of 2015 following the weak start to the year.
However, BDO said sustained growth depended on companies converting their confidence into the capital expenditure needed to boost productivity. Investment in skills and equipment could help to tackle stagnant productivity levels, boosting business output and ultimately growth, it adds.
In a clear message to David Cameron, the firm said the new government must act quickly to put in place policies encouraging businesses to invest.
BDO’s wishlist would like to see the government permanently increase the annual investment allowance (AIA) to £5m, giving a real incentive for businesses to invest in the capital assets that will drive future growth, and give firms the confidence to plan ahead.
It should also consider a VAT zero rating of supplies to companies that export. The UK currently allows manufacturers to zero rate their exports but not their suppliers.
Commenting on the findings, Richard Rose, partner and head of BDO in the West Midlands, said: “Ahead of the 2010 election our data showed high levels of business confidence, much like this time around. However this fell away not long after. To avoid this happening again, the new Conservative government needs to put firm actions in place to help businesses thrive.
“It is encouraging to see that businesses are feeling optimistic about the coming months in the hands of a new government, but the confidence that counts is the confidence that converts to businesses actually investing. Our new leaders must help with this by putting tangible measures in place that will encourage businesses to invest in training or research, technology and equipment to help improve productivity.
“The new government also has the opportunity to boost future economic growth by investing judiciously in our country’s infrastructure. I hope that they will take it.”
Elsewhere, the latest Lloyds Bank Commercial Banking West Midlands PMI report shows that output growth in the region’s private sector economy eased in April, following March’s 13-month high.
However, the pace of expansion remained strong overall and slightly above the UK average. Similarly, new business and employment increased at robust rates, albeit the slowest in three and four months respectively.
Input prices rose for the first time since last December, whereas output charges decreased at the sharpest rate in 31 months.
The Lloyds Bank West Midlands Business Activity Index – which measures the combined output of the region’s manufacturing and service sectors – registered 58.7 in April. Although down from March’s recent peak of 61.2, the latest reading points to a marked rate of expansion. Although output growth was broad-based across the manufacturing and service sectors, the latter continued to post considerably stronger growth.
Commenting, Mark Cadwallader, area director for SME Banking in the Midlands, Lloyds Bank Commercial Banking, said: “Although output growth cooled from a 13-month high in April, the West Midlands continued to enjoy a strong pace of expansion in private sector activity. This underpinned further robust job creation, albeit the slowest in four months. However, competitive pressures caused a fall in prices charged despite a modest rise in raw material costs.”
