Business confidence and the outlook for growth appear to be stuttering, following two previous quarters’ record highs.
According to the latest (Q3 2015) quarterly barometer from the Chartered Institute of Credit Management (CICM), confidence has fallen in both Manufacturing and Services.
The CICM’s Credit Managers’ Index (CMI) shows a 7.1 percent drop in the headline index, which closed down 4.3 points to 56.4. It is caused by a dip in both the Manufacturing sector (down 3.7 points to 55.5) and Services (down 2.2 points to 56.8).
Crucially, however, both sectors remain comfortably above the 50-point threshold, indicating that overall confidence and performance remains positive.
The index, sponsored by Tinubu Square, is important because it gauges nationwide levels of credit being sought and granted by credit managers across industry. It therefore acts as a primary indicator of actual levels of business being conducted.
The index also showed that nearly half (47%) of credit managers have had to pursue what they consider to be a “large claim” against a debtor in the last year. 23% of respondents had pursued more than one large claim. Over a quarter (29%) of credit managers also said that they are encouraging their company to change its appetite for risk when setting trade credit terms. 48% describing themselves as more cautious than ever before.
The Manufacturing sector has taken a significant hit over the past two quarters, closing down 6.13 points; while the Services sector, has fared better over the same time period and is down 0.43 to its current standing at 56.8.
On average, the three favourable factors – new applications for credit, sales and the order books – reduced by 4.1 points to 65.9. Yet with each factor remaining well above the 50-point benchmark, the warning bells are not ringing quite yet; however, it will present a worrying issue if this is the start of a longer-term trend and further reductions are to come.
Although unfavourable factors have remained positive for the tenth quarter in a row, with the average currently standing at 52.3, six out of seven of the factors decreased in Q3 – with disputes falling by 6.8 points to close at 46.9.
Philip King, Chief Executive of the CICM, says that the index appears to contradict the Office for National Statistics results, which has recently announced an improvement in Service sector performance:
“This points us to alternative factors when explaining the UK CMI services sector fall,” he says. “Current instability in emerging economies, the slowdown in China, and estimates that UK interest base rates will remain at 0.5 percent for another 18 months, may be having an effect.
“The FTSE All Share index has shrunk steadily over the quarter by 6.6 percent,” he continues, “and it may be the case that the same factors impacting the market have contributed to the UK CMI’s 7.1 percent fall.”
Sebastien Clouet, Marketing Director for Tinubu Square, adds “This impact across the FTSE and wider UK market is being felt in a number of ways and the need for companies to pursue debtors for payment is another indicator of this. The desire to tighten the reigns on credit risk is a sensible one, but credit managers must manage this proactively in a way where they do not unnecessarily stifle opportunities for their company.”
In better news, 15 out of 20 sectors remain above the crucial watermark, with telecoms reporting the highest level of confidence at 71.0. However, four sectors, including oil and gas, which reported high results in Q2, are now sub-48 – with the basic resources sector falling 19 points to close at 37.
The latest CMI prompted some 300 responses from credit managers in companies of various sizes broadly split by region, although slightly weighted to business in London and the Southeast.
The CMI is a diffusion index, producing ‘scores’ of between one and 100 (typically in a range of 40 – 60). Ten equally weighted factors are included – three favourable and seven unfavourable – and the index is calculated on a simple average of the 10 factors.
http://www.cicm.com/