Companies are adopting a wait-and-see approach in the face of fears of a downturn, as economic uncertainty and interest rates concerns make their mark on investment and spending alike. On a more positive note, issues seen in the construction and leisure/hospitality sectors are seemingly not trickling through universally. 

However, members in manufacturing reported September order intake to be significantly down. “We never knew how good we had it during COVID-19,” one member in the South West remarked. 

Sustainability

Even before the government announced plans to row back on its green policies, members reported a dampening of demand in renewables for decarbonisation. In addition to supply chain and import challenges and the ensuing impact on cost, a lack of people to deliver on projects is also a factor at play that will likely see the rates of renewables in the UK start to decrease.

Ongoing post-Brexit uncertainty is being combined with concern that the US Inflation Reduction Act is diverting investors to the US that would otherwise invest in the UK. 

Meanwhile, the cost of energy remains a significant issue, particularly among energy-intensive manufacturers with members expressing angst over being locked into contracts at unfavourable prices. It raises the question over use of the energy broker market to buy energy, and whether regulation is needed. 

Retail focus

The demise of Wilko feels like another nail in the coffin for an already ailing high street. And while government claims that visitor numbers to the UK have now reached pre-COVID-19 levels, Europe is seeing massive increases on pre-pandemic numbers, particularly from the US.

For retailers, the weather is one factor resulting in a rollercoaster summer, prompting a surge in demand for own-brand products. Although a reduction in freight costs is allowing for price reductions on some products, growth is coming from price increases rather than growing volumes.

Stock is a big challenge, particularly for those suppliers holding large volumes of discounted stock. Wages remain a pinch point and contributor to inflation, with use of shared service centres being explored to reduce cost. 

Meanwhile, luxury brands appear to be seeing growth opportunities; the challenge there is not having the capacity to expand. Members also highlighted a resurgence in bricks and mortar sales prompting businesses with an online presence to open physical spaces. 

Access to finance and late payments

Banks remain unwilling to lend and members bemoan that government-supported schemes are failing to reach those most in need of funds. 

Some improvements in payment terms for SMEs are being noticed, particularly where government/regulators have been involved, for example, in sectors such as defence, which impacts contract scoring. However, to suggest that the issue of late payments has been resolved would be untrue. “Customers don’t like paying,” one manufacturing member in the South West remarked. “They take three months of credit but then don’t pay – they don’t tell you, they just don’t do it.”

Companies are turning once again to cheque payments as a means to buy more time, and reduced confidence in securing payment is leading businesses to hold cash for longer across the board. Meanwhile, demand for debt management software is increasing. The situation has prompted a call for legislation, particularly to hold larger companies to account. 

Talent and diversity

Despite evidence that the job market is starting to shift, practice recruitment remains extremely difficult, particularly at the smaller end of the practice market. While it is easy to recruit apprentices “they are impossible to retain”, one practice member complained. The difficulty in recruiting qualified staff continues with those just qualified expecting large salaries. “The field is so competitive, small practices cannot compete.”

The situation is prompting increased demand to train accountants. In the words of one member, “people, people and people” are the challenge. There is growth in school leaver programmes as employers extend talent pipelines, with offers being made earlier with the associated risk that things may change in the interim. 

Outside of the accountancy sector, retention and recruitment remains a thorn in businesses’ sides and the prospect of an increase in the National Living Wage is putting a lot of pressure on retailers.

Trade

From a trade perspective, supply chain issues appear to have been resolved with the appetite for 

onshoring now diminished. There is ongoing nervousness about the state of China and its impact on demand. 

Members expect economic disruption ahead of next year’s general election. With political party manifestos in development, there is an opportunity for ICAEW to influence the incoming government’s agenda, highlighting our policy positions and campaigns. It is also an important chance to demonstrate the value of the accountancy profession to the wider economy.

Economic renewal and resilience, tax and finance: tell us what you think

ICAEW is developing a manifesto to collate recommendations under the key themes of economic renewal and economic resilience. The policy document will include recommendations to ensure that the UK economy is accountable, sustainable, productive and innovative. 

We want to understand members’ priorities for the next government. What are the biggest issues you are facing and what would be your proposed solutions?

We will also be making recommendations to government in advance of the Autumn Statement, which the Chancellor will deliver on 22 November 2023. Again, we would love to hear your ideas on the tax and finance measures the current Government could implement to support your business, promote growth and increase productivity.

Please send your ideas to chris.lane@icaew.com by 6 October 2023. Our proposals need to be practical and deliverable, but we encourage you to be bold in your thinking.