Rebooting the British economy
Yesterday the Institute of Chartered Accountants in England & Wales published its latest Business Confidence Monitor report. The ICAEW’s quarterly BCM report was first published in 2003 and is a measurement of confidence across a number of industry, geo and company size demographics. It represents the opinions of more than 1,000 senior managers and business owners.
The biggest takeaway from yesterday’s report is that UK business confidence has finally emerged from the negative zone where it has languished since confidence began its downward trend eight quarters ago in the summer of 2007. It is worth remembering that it was in August 2007 – doesn’t time fly when you’re not having fun – that we first saw the signs of the coming global financial markets collapse with the dramatic run and subsequent collapse of the Northern Rock Bank, a UK high street stalwart for many years.
Business confidence is an opinion based, subjective metric which can be loosely interpreted as a leading indicator of the underlying health of the economy. And off the back of the news last week that economies of Germany and France had both reverted back to positive growth, UK economists accordingly expect our GDP will be back in black within a quarter or so.
However, before we start lighting cigars with fifty-pound notes it is worth nothing that while this data-point is patently more encouraging than if the reported business confidence index was still plumbing its previous depths, it is still early days and there are other important factors to consider.
Douglas McWilliams, chief executive of CEBR who prepares the BCM report for the ICAEW gave this stark warning yesterday;
“Despite compelling signs of the recession nearing an end, I remain doubtful over the strength of recovery. The UK economy is still swamped with debt, earnings growth is weak and unemployment is rising…”
Last month I had the benefit of meeting an economist from CEBR and he demonstrated the same highly guarded sense of optimism. If you could even call it optimism. We discussed that while business confidence is a helpful if simplistic early warning system for economic contraction and recovery, historical analysis of the recessions of 1979 and 1991 suggest that the UK has some way yet to go. Notwithstanding the perilous state of UK public finances which the government will be forced to address though cuts in public spending and likely increased taxation – both of which will impede recovery – having endured its biggest drop in fifty years in only Q1 this year, CEBR predict that UK unemployment will continue to climb for up to a further two years after baseline economic growth returns – a somewhat sobering thought.
But it was encouraging to see that the industry sector with most improved confidence in the latest report was IT.
“….IT firms are the most confident of all and saw the greatest improvement in confidence in the quarter with the Confidence Index reaching 18.5 – the highest since Q4 2007.”
Even the traditionally up-beat UK technology sector had to break out its Leonard Cohen record collection* in 2008 in the face of most discretionary spend and absolutely all capital IT spend simply vanishing.
But now confidence among IT firms has returned, presumably off the back of cautious re-investment in updating elderly business systems and processes. While it would be something of a stretch to suggest that technology has a significant role to play in getting the entire UK economy back on track, I am hopeful that many will see this recovery phase as an opportunity for re-thinking and resetting expectations about how modern technologies can help businesses, and in ways that were not possible barely two or three years ago.
* Apart from Xero, of course – where apparently we’ve had Katrina And The Waves on infinite repeat for ages.
Gary Turner joined Xero in August 2009 as its new UK managing director. He is a twenty-year veteran of the UK accounting software industry and has had a seat on the ICAEW’s IT Faculty technical committee since 2005.