The resilience of business is one of the resounding themes of 2022, as businesses of all sizes and in all sectors have weathered a wave of economic and political challenges over the past 12 months and managed uncertainty not seen since the financial crisis of 2008.

The UK was already reeling from post-pandemic demand combined with supply and labour constraints from Brexit when Russia’s invasion of Ukraine in February sparked the energy crisis and set the country on a path to inflation, the likes of which many of us have never experienced before.

Business confidence

ICAEW’s Business Confidence Monitor (BCM) started the year relatively well; it was positive in Q1 2022 with a reading of 27.6 – albeit a sharp fall from the BCM peak of 47 in the third quarter of 2021. 

However, by September retailers were anticipating falling sales and the need to spread costs over lower volumes, prompting some to describe consumer confidence as “through the floor”. That negative sentiment continued with confidence sliding to its present Q4 reading of -16.9, with all regions and nations posting a negative result. 

Small businesses that had come out of lockdown in a financially good situation started to burn through cash reserves due to increased costs and falling demand. A resurgence of COVID-19 in China propelled the importance of supply-chain resilience and security up the board agenda, amid talk of deglobalisation and reshoring in the search for stability. 

One glimmer of hope was that domestic sales positively impacted the BCM results. However, many businesses wanting to insulate customers from price increases absorbed input cost inflation through squeezed margins. 

Growing economic and political uncertainty against a backdrop of weakening GDP, the rising cost of imports and spiralling freight costs prompted businesses to postpone or shelve investment decisions with businesses unwilling to commit to long-term plans. Insolvency enquiries were on the rise and despite the announcement of an extension to the Recovery Loan Scheme, concerns were raised over ongoing government support. 

Energy 

The continuing war in Ukraine placed the UK’s energy security under the spotlight and in May ICAEW members welcomed the publication of the British Energy Security Strategy and its push for renewable energy. 

Meanwhile, with energy bills rocketing, the announcement of the Energy Bill Relief Scheme for businesses and other non-domestic customers was applauded. Uncertainty remains as to what will happen from April 2023 when the Energy Bill Relief Scheme comes to an end, particularly among members in energy-intensive industries, including manufacturing and hospitality. 

The business team submitted a response to the Department for Business, Energy and Industrial Strategy (BEIS) to better understand business disruptions this winter, amid calls for incentives for businesses to invest in energy-saving technology. ICAEW’s Energy crisis, Cost of doing business and Inflation hubs collated content and practical advice to address challenges presented by rising energy costs. 

Recruitment and skills

Skills issues were a recurring theme throughout the year, with members highlighting access to skills, retention, recruitment and resulting wage inflation as a primary and ongoing concern. 

Universal challenges with retention and recruitment grew worse, with some organisations unable to fulfil orders or maintain service levels as a result. Businesses unable to compete with spiralling wage demands began to look closer at employee benefits and flexible working arrangements to retain and attract staff.

Levelling Up the United Kingdom was firmly on the agenda and members hoped for a positive impact on regional infrastructure, investment and skills – although they questioned the lack of detail that was expected to follow. 

The cost-of-living crisis was starting to bite, with salaries beginning to rise in response. The hospitality sector struggled to hire a shrinking pool of workers; many had left the sector during the pandemic. With increasing uncertainty, ICAEW Chartered Accountants reviewed business models and explored varying scenarios, including best, worst and most likely.

Net zero

Record temperatures in July turned attention to climate change, with members questioning why this wasn’t a key topic of debate in the Conservative leadership race. By the summer, sustainability and the move to net zero, which post-COP26 had been a key focus, was slipping down priority lists. 

Although payback periods for green investment had shrunk, businesses lacked the funds and incentives to invest in renewable technologies. Where appetite did exist, this was hampered by supply-chain constraints and the availability of green skills to implement. 

Nonetheless, opportunities for businesses to take a long-term view were identified, specifically in relation to innovation and training. Despite Yorkshire and Humber recording the lowest confidence in Q4’s BCM, the region is seeing a steady growth in industries supporting the drive to net zero and carbon reduction technology. Investment and initiatives to drive regional prosperity through local decision-making are seen as critical. 

Access to finance

One of the biggest challenges identified was the availability and affordability of lending. With the Bank of England base rate rising in a bid to curb inflation, the question for many members was how to grow in a market where making a profit was so difficult. 

The disastrous mini-Budget on 23 September had a detrimental impact on business confidence. The resulting turmoil and market uncertainty negatively impacted exchange rates and led to urgent intervention by the Bank of England to shore up the gilt market. 

Member insights in October and November highlighted liquidity and access to finance as key challenges. Consumer-facing businesses in particular cited bank finance as hard to come by and warned of a squeeze on working capital through rising costs and falling demand. 

ICAEW’s Q4 BCM reiterated their concerns and highlighted a notable uptick in difficulties in accessing capital and from late payments, prompting concerns that businesses would be more exposed to future external shocks. In December, the Government announced a review, identifying delayed payments as a barrier to improved productivity and job creation. 

Economy

Inflation rippled through supply chains with price volatility rampant. This was particularly noticeable in construction, where price increases were passed on with limited pushback. 

October saw a new Prime Minister and in November a new plan for the economy was unveiled. Some members applauded a more balanced budget, with others raising concerns over what would happen if growth projections didn’t materialise. 

Much was as expected, with members questioning the delicate interplay of fiscal and monetary policy measures. Specific concern was raised over freezing of tax thresholds, an increased wage burden through the National Living Wage and the impact of changes to R&D on SMEs. 

The ICAEW UK Regions Economic Summit on 30 November, gathered insight from 11 regional discussions looking at challenges and opportunities. Brexit and its impact on supply-side pressures emerged as a common concern. 

Adoption of technology to increase efficiency and improve productivity was identified as an opportunity, with recognition that appetite is negatively impacted by cash-flow concerns. Cash management was deemed critical over the next 12 months. 

Moving into December’s festive period, the retail sector is experiencing higher stock levels. While Black Friday was reasonable, there is concern that this was the Christmas spend come early. Customers are more cautious, with the sector anticipating casualties in early 2023. The rail strikes are a considerable blow for both retail and hospitality sectors.

As businesses look set to navigate further uncertainty in 2023, the role of ICAEW Chartered Accountants has never been more important. ICAEW’s Business Advice Service provides a free consultation to businesses seeking trusted business advice