Business confidence, after showing signs of a rebound in Q1, has stalled again now.

Growth in business activity remains weak, with no significant improvement to domestic sales, cash flow data and profitability indicators compared to Q1 data.

But the data also reveals that the main factor for increasing costs is now coming from wages rather than utility bills or raw materials.

The survey of over 5,000 firms—92 per cent of whom are small and medium enterprises (SMEs)—also reveals business performance across different sectors varies considerably, with retail firms (38 per cent) suffering more widely from cash flow difficulties.

There was a small increase in the percentage of firms believing their business turnover will rise over the next 12 months, up to 54 per cent from 52 per cent in Q1.

Profitability confidence also improved slightly to 44 per cent from 42 per cent in Q1, but it continues to remain weaker than turnover confidence.

This slightly improved outlook is not translating through to increased business investment.

The number of respondents reporting an increase to investment in plant/equipment dropped to 23 per cent from 25 per cent in Q1.

Inflationary pressures continue to ease but remain the top concern. The percentage of firms expecting their prices to rise fell below 50 per cent for the first time since Q3 in 2021. It has fallen from 60 per cent of firms in Q4 2022 to 45 per cent in Q2 2023.

While inflation remains firms’ biggest concern, the level has dropped for the second quarter running, with 69 per cent of firms now worried compared to 74 per cent in Q1. However there has been a corresponding 5 percentage point rise in businesses worried about interest rates, increasing from 36 per cent in Q1 to 41 per cent in Q2, the survey found.

Labour costs are now the top cost pressure for businesses.

But there remain wide sectoral differences, with 75 per cent of manufacturers citing raw materials as the main factor driving price increases.

The retail sector was least worried about labour costs, with 56 per cent citing it as an issue, against 64 per cent flagging utilities and 67 per cent raw materials.

Fibre2Fashion News Desk (DS)