August is traditionally when members venture on holiday – an opportunity to refresh the batteries for the last quarter. And while there have been some sunny days to enjoy, a predominance of rainy weather has painted a bleak picture for those holidaying closer to home.

The same can be said for the economy and the ongoing challenges businesses continue to face. Although ICAEW’s Q2 Business Confidence Monitor (BCM) continued the trend to more positive territory established in Q1, it wasn’t by much. A marginal increase in confidence reported by the index from 2.5 (Q1) to 6.1 in Q2, while a step in the right direction, was only a tentative one.

As summer transitions to autumn, members have mixed feelings about the prospects for the businesses they run or work in. The future remains uncertain.

Access to finance 

Banking arrangements and access to finance challenges continue to be raised. Caution in lending and increased levels of due diligence required before financing decisions can be approved are having a knock-on effect in businesses’ ability and willingness to make investment decisions. A member in the North East reported getting more traction with second and third-tier lenders, but noted that “this comes at a higher cost”.

A member based in the East Midlands reflected how the landscape has changed. “When I started the business nearly 20 years ago, I had an experienced relationship manager at the bank, but now the relationship manager is a junior whose definition of ‘relationship’ is funnelling information back and forth for approval.” He described banks as being “increasingly inflexible because they don’t understand the sector – if you’re big you can make things happen, if you’re small, the process reverts to the more formulaic/questionnaire-based approach”.

This is an issue highlighted by members across a broad range of sectors and, along with late payments, was a key topic at ICAEW’s Small Business Regulation discussion attended by the UK Small Business Commissioner. Access to finance woes remain an ongoing issue and a hindrance to businesses’ ability and confidence to invest.

ICAEW is responding to the Treasury Select Committee Call for Evidence on SME Finance and is extremely grateful for insights gathered from members.

Investment

Uncertainty is a drag on investment. Against a backdrop of economic turbulence, members have described “sitting on their hands”, waiting to see what happens to interest rates. A member in the North East described availability of local funding as having “dropped by a third” with a pause on infrastructure projects having a ripple effect on demand through supply chains. Another member described businesses “holding fire on investment decisions until the base rate plateaus and they have certainty on payments and how high the base rate will go”. 

Cash flow remains an ongoing challenge and limits an organisation’s ability to service existing debt or to invest in new projects. A curtailed appetite to invest combined with challenges widely reported across all sectors relating to retention and recruitment of staff is likely to hold back UK productivity for some time. 

Energy

Members remain cautious about the cost of energy. Although energy costs have fallen from the highs seen towards the start of this year, there remains nervousness as to where energy prices may head when the colder weather arrives.

There is an appetite to invest in green technology but, for reasons outlined above, this is not always possible. There is also confusion as to which technology and the wider policy landscape of the UK’s energy security strategy and response to the US Inflation Reduction Act (IRA).

The Chancellor highlighted in the Spring Budget that a response to the IRA would be looked at as part of the Autumn Statement. Although autumn is nearly upon us and a lot closer than when this was mentioned back in March, it remains to be seen how far any announcements will go in encouraging investment in green technology, infrastructure and skills.

ICAEW’s Climate Summit in November, supported by ICAEW’s Energy and Natural Resources Community, includes a morning dedicated to energy and will focus on the role of finance in the energy transition and the importance of demand reduction.