Billions of pounds held back from economy by uncertainty
Unemployment to rise as companies lack confidence to invest stockpile of funds
Business are braced for a bleak second half of the year, with finance chiefs prepared to sit on billions of pounds their companies have stockpiled as confidence plummets, while a sharp fall in the number of staff placements fuels fears that the unemployment rate could hit three million in UK again.
The latest monthly report on jobs from KPMG Rec shows wages stagnating as both permanent and temporary appointments fell last month at the fastest rate since July 2009.
"After five months of consecutive growth, the latest data comes as a sobering reminder that we're far away from a confident economic situation," Bernard Brown at KPMG said. "If this trend were to continue, there's a very real chance we could hit a three million unemployed figure in the UK in the not too distant future."
Meanwhile Deloitte's second-quarter finance survey, which questioned 137 finance directors, including 39 from the FTSE 100 and 57 from FTSE 250 companies, shows the sharpest decline in corporate confidence since it was started in 2007. It marks a reverse on the first quarter which showed confidence rebounding.
It is echoed by a survey from BDO Business Trends that found business confidence at its lowest point this year, with optimism in the manufacturing sector in particular slumping in June to the lowest level since March 2009.
Economists are worried that manufacturing data on Thursday could show another fall in output in May, after a sharp drop was recorded in April.
Deloitte said sentiment has now seen three major dips in the space of five years.
Its survey, one of the most authoritative polls of opinions of the executives with their hands on company purse-strings, also found they are actively preparing for the ejection of one or more countries from the euro by the end of the year. More than a quarter say plans for coping with a break-up of the single currency are "made" or at "an advanced stage", against 18 per cent in the first quarter. They rate the chance of it happening at 36 per cent, up from 26 per cent in the first quarter.
Their mounting fears over the economy means they have adopted defensive strategies including avoiding any risk – four in five say now is not a good time to take risk on to company balance sheets. This is despite an apparent ready access to finance, with just 4 per cent of them citing the cost or availability of credit as having influenced changes to their investment plans.
While they said availability was declining, it is still not difficult for large corporates to borrow, and the cost of what can be obtained, they told Deloitte, is lower than at any time in the last five years.
By contrast, 82 per cent said that expected demand for their goods and services together with uncertainty about the economic environment were having far more influence on recent capital spending decisions.
That bodes ill for those hoping that companies will start to spend cash on investing in their businesses to stimulate the economy.
Ian Stewart, Deloitte chief economist, said uncertainty was having "a corrosive effect on risk appetite".
"In an indication of the challenge in getting corporates to invest their cash reserves and drive UK economic growth, 95 per cent of CFOs rate the current financial and economic uncertainties facing their business as being above normal," he warned.
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