UK businesses express caution ahead of upcoming interest rate decisions

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Despite a number of positive recent indications on the health of the UK economy, business confidence suffered a dip in Q3, as company leaders express renewed caution over the future.

undefinedOutwardly, the latest economic figures would seem to suggest a strong outlook for British firms. Purchasing Managers Index data released this week shows the services sector exceeded expectations in Q3, leading Markit to predict a growth rate of 0.8 per cent for the sector during this period.

Similarly, July housebuilding activity increased at the fastest rate seen since 2003, contributing to an overall PMI figure of 62.4 for the construction industry, well above the threshold of 50, indicating growth. Even in manufacturing, which saw a significant slowdown during the month, the index remains above this pivotal level, at 55.4.

Nonetheless, the latest Business Confidence Monitor from the ICAEW and Grant Thornton reveals business leaders do not entirely share this optimism, as confidence dropped from a balance of +37.3 in Q2 to +32.3 in Q3.

“Businesses are becoming more realistic about the future,” commented Stephen Ibbotson, Head of the ICAEW’s finance and management faculty, speaking to the Independent.

Though initially spurred on by the burgeoning economic recovery, companies may now be taking a deeper look at the challenges facing each sector. In manufacturing, political unrest between Russia and the Ukraine raises fears over knock-on effects for UK export markets, while brick shortages weigh on construction firms’ minds. Skills shortages too, remain a critical questions for all industries, with many struggling to find the experienced recruits they need to support growth.

“The imbalances in our economic recovery that were masked by rising confidence continue to persist,” confims Ibbotson, elaborating, “Our exports remain weak, and investment isn’t maintaining momentum. "

Alongside these individual factors, the mounting likelihood of an interest rate rise in the near term is causing many business leaders to act with vigilance. While on the most part this suggests a prudent approach, it is crucial that this effect doesn’t spill over into excessive caution, which could prevent companies from pursuing valid growth opportunities and hold back the economic recovery.

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